Investors of Sovereign Gold Bond have got bumper returns.
The Reserve Bank of India (RBI) has announced the premature redemption price for Sovereign Gold Bond (SGB) 2020-21 Series-I. This bond was issued on April 28, 2020. According to a statement from the central bank, investors will have the option to prematurely redeem this tranche of SGB from April 28, 2026. According to RBI, premature redemption of SGB series will be allowed after five years from the date of issue of the gold bond, exclusively on the date on which interest is paid.
How is the calculation done?
As per central bank guidelines, the redemption value will be calculated using the simple average closing price of gold of 999 purity, published by the India Bullion and Jewelers Association (IBJA) for the last three working days.
What is the premature redemption price?
The premature redemption price of SGB due on April 28, 2026 has been fixed at Rs 15,124. This price is based on the simple average of the closing prices of gold on IBJA for three trading days – i.e. April 23, April 24 and April 27, 2026. SGB 2020-21 Series-I was issued for online subscription at the rate of Rs 4,589 per gram. Therefore, on the date of premature redemption, it will give an absolute simple return of approximately 230 per cent. For investors who had purchased SGBs of this series offline, the issue price was Rs 4,639 per gram of gold. A discount of Rs 50 was available on online purchase of SGB.
The absolute return comes to Rs 15,124 – Rs 4,589 = Rs 10,535 (not including interest of 2.5%). In terms of percentage, it is 15,124 ÷ 4,589 × 100 = 230 percent (approximately). The 230 per cent return means that if a person had invested Rs 1 lakh in this SGB series at the time of its release in April 2020, that investment would now be worth around Rs 3.30 lakh, as per the announced premature redemption price. This amount does not include 2.5 percent annual interest, which gold bond holders get on the original investment amount.
What is Sovereign Gold Bond (SGB)?
SGBs are government securities, whose price is fixed in grams of gold. These are an alternative to keeping real gold. Investors have to pay the issue price in cash and redemption of the bond on maturity is also in cash. Gold bonds are issued by RBI on behalf of the Government of India.
How much can you buy SGB?
The minimum investment for a customer in SGB is 1 gram. The maximum purchase limit for individual and HUF investor categories is 4,000 grams (4 kg), and for Trusts and other similar entities notified by the Government, the limit is 20,000 grams per financial year (ie, from the 1st day of April of any calendar year to the last day of March of the next calendar year), or as may be prescribed by GOI/RBI/NSEIL from time to time. If the bonds are placed jointly, this limit will be applicable to the applicant first. The annual limit will include bonds purchased in different installments during initial issuance by the government, as well as bonds purchased from the secondary market.
What is the interest rate on SGB?
These bonds pay interest at the rate of 2.50 percent (fixed rate) per annum on the initial investment amount. Interest is credited to the investor’s bank account every six months, and the last interest is paid along with the principal amount on maturity of the bond.
When is the Certificate of Holding issued to SGB customers?
Certificate of Holding is issued to SGB customers on the date of issue of SGB. Certificate of Holding can be obtained from the issuing banks/SHCIL offices/post offices/selected stock exchanges/agents, or directly from RBI over email if email address is provided in the application form.
