Over 3X return in 5 years: RBI reveals premature redemption price, date for SGB 2019-20 Series-VI; investors to get 217% return

The Reserve Bank of India (RBI) has announced the premature redemption price for the Sovereign Gold Bond (SGB) 2019-20 Series-VI-Issue date October 30, 2019. According to a statement from the Central Bank, investors will have the option to redeem these SGBs prematurely on October 30, 2025. The tenor of the SGB is 8 years, but the premature redemption of the bond is allowed after the fifth year from the date of issue.

This tranche of 2020-21 Series-VII Issue was open for subscription from October 21-25, 2019. The bonds were issued on October 30, 2019.

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Premature redemption date for SGB 2019-20 Series-VI

The RBI has said in a statement that in terms of GOI notification F.No.4(7)-B (W&M)/2019 dated September 30, 2019 (SGB 2019-20 Series-VI-Issue date October 30, 2019) on the Sovereign Gold Bond Scheme, the premature redemption of Gold Bonds may be permitted after the fifth year from the date of the issue of such Gold Bonds on the date on which, interest is payable. Accordingly, the next due date of the premature redemption of the above tranche shall be on October 30, 2025.

What is the premature redemption price of SGB 2019-20 Series-VI?

The redemption price for premature redemption due on October 30, 2025, will be Rs 11,992 per unit of SGB based on the simple average of the closing price of gold for the three working days, i.e., October 27, 2025, October 28, 2025, and October 29, 2025.

SGB 2019-20 Series-VI was issued at Rs 3,835 per gram without discount. redemption. For such investors, the issue price of Gold Bond series will be Rs 3,785 per gram of gold.

For online investors, it will yield an absolute simple return of nearly 217% on the date of the premature redemption.

The absolute return comes to Rs 11,992 -Rs 3,785 = Rs 8,207 (without factoring in the interest). In percentage terms, it is 8207÷ 3785× 100 = 216.82%.

What investors need to do for premature redemption?

Investors holding SGBs should review the redemption schedule carefully. Some of the key actions include:

a) Identify the tranche to which your bonds belong by checking the issue date.

b) Ensure that your request for premature redemption is submitted by the deadline mentioned in the schedule.

SGB interest rate

The interest on the SGB will apply from the date of the issue of the series and will be paid at a fixed rate of 2.50% per annum on the nominal value of the bond. The interest is paid half yearly and the last interest is paid along with the principal on maturity.

Are there any risks in investing in SGBs?

There may be a risk of capital loss if the market price of gold declines. However, the investor does not lose in terms of the units of gold which he has paid for, as per FAQs available on the RBI website.