New Delhi, Aug 14 — The Reserve Bank of India (RBI) 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.