Gold bond holders rake in over 4-fold bonanza as RBI okays premature redemption
New Delhi, Aug 14
The Reserve Bank of India has announced the premature redemption price for Sovereign Gold Bond SGB 2019-20 Series III - Issue date August 14, 2019, at Rs 15,310 per unit, which gives investors the option to redeem this SGB tranche prematurely from August 14, 2026.
The RBI has fixed this redemption price at more than four times the issue price of Rs 3,449 per gram for investors who applied online.
The price translates into an absolute gain of Rs 11,861 per unit, or about 343.9 per cent, on the initial investment, excluding the interest that has been earned during the holding period.
The redemption price is based on the simple average of the closing prices of 999-purity gold for the three business days preceding the redemption date, which are Aug 11, 12, 13, as published by the India Bullion and Jewellers Association (IBJA). The SGB was issued on August 14, 2019, making this a seven-year holding period. The RBI's SGB rules provide for premature redemption after the fifth year from the date of issue, on an interest payment date
For instance, Rs 1 lakh invested at the online issue price would correspond to around 28.99 units of the SGB. At Rs 15,310 per unit, those units would be worth approximately Rs 4.44 lakh at premature redemption.
This represents an absolute gain of about Rs 3.44 lakh, before accounting for interest. The annualised return from the increase in the redemption value works out to roughly 23.7 per cent a year over seven years.
SGB investors also received 2.5 per cent annual interest on the original investment, paid semi-annually. That interest is separate from the capital appreciation linked to gold prices. The RBI's SGB framework specifies the 2.5 per cent fixed annual interest rate and eight-year maturity, with premature redemption available from the fifth year on interest payment dates.
Buyers of the SGB series were informed of the option for premature redemption after the fifth year as part of the conditions incorporated at the time of the sale of the bonds.
— IANS
Reader Comments
This is exactly why SGBs are a great alternative to physical gold—no making charges, no storage worries, and you still get the price appreciation. The 4x return in 7 years is impressive, though I wish I had invested more back then!
Main toh soch rahi hoon ki premature redemption karun ya hold karke 8 saal poore hone doon. Gold ki price aur badhegi toh kya faayda hoga? Bank wale kehte hain abhi market high hai, but gold hamesha long term mein hi best hai. Kya karna chahiye? 🤔
It's great to see the RBI offering a 4x return, but let's be fair—the 2.5% annual interest is quite low compared to inflation. The real gain is from gold price appreciation, which is global and unpredictable. Still, better than FDs for those who entered early!
Mera experience SGB ke saath accha raha hai. Physical gold mein extra charges lagte hain, lekin SGB mein purity ka tension nahi. Yeh 344% ka gain dekh ke achha laga, par naye investors ko entry price ka dhyan rakhna chahiye. Gold abhi record high pe hai!
A solid 23.7% annualized return plus 2.5% interest—that's a compelling package for risk-averse investors. The prematurity option after 5 years adds flexibility too. I just wish the RBI had allowed online redemption fees to be waived off at this scale.
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