Investors of Sovereign Gold Bonds (SGBs) are reaping a bonanza with gold prices rallying strongly in the last few years. Despite the recent correction in gold prices, gold bonds are still yielding triple digit returns.The Reserve Bank of India (RBI) has announced the premature redemption price for the SGB 2021-22 Series VI, which was issued on September 7, 2021. In a statement, the RBI has said that investors in this gold bond series will be able to exercise the premature redemption option from September 7, 2026.According to the RBI, Sovereign Gold Bonds can be redeemed prematurely after completing five years from the date of issue, but the redemption is allowed only on an interest payment date.What are Sovereign Gold Bonds? Who issues them and what interest do they earn? How is the redemption price calculated? Let’s take a look:
SGB redemption price calculation explained:
First, let’s understand how the redemption price of sovereign gold bonds is calculated.The redemption value of an SGB is determined using the simple average of the closing prices of gold of 999 purity for the three preceding working days.These prices are published by the India Bullion and Jewellers Association (IBJA), the RBI said.For example, in this case the calculation works out to be:
- Issue price: Rs 4,682
- Redemption value: Rs 15,334
- Absolute gain: Rs 15,334 – Rs 4,682 = Rs 10,652
Expressed as a percentage:(Rs 10,652 ÷ Rs 4,682) × 100 = 227.50%Therefore, the SGB will have delivered an approximate 228% absolute return, without taking the interest earned on the bonds into account.A nearly 228% absolute return means that an investor who put Rs 1 lakh into this SGB series when it was issued would see the investment rise to nearly Rs 3.28 lakh by the premature redemption date. This calculation does not include the interest earned on the original investment.For investors who purchased the same SGB series offline, the issue price was higher at Rs 4,732 per gram of gold. Those buying the bonds online received a discount of Rs 50.
What is the premature redemption price for SGB 2021-22 Series VI?
For SGB 2021-22 Series VI, the premature redemption price payable on September 7, 2026, has been set at Rs 15,334 per unit.The price has been arrived at using the simple average of gold’s closing prices for the three preceding business days, namely September 2, September 3 and September 4, 2026.The bonds in this series were originally issued at Rs 4,682 per gram for investors purchasing them online. At the September 7, 2026 premature redemption price, the investment will therefore generate an absolute simple return of nearly 228%, excluding interest.The RBI website provides the following important frequently asked questions (FAQs) about Sovereign Gold Bonds:
What is a Sovereign Gold Bond (SGB) and who issues it?
Sovereign Gold Bonds are government securities whose value is denominated in grams of gold. They offer an alternative to holding gold in physical form.An investor pays the issue price for the bond, which is subsequently redeemed at maturity, with the redemption amount paid back to the investor. The bonds are issued by the Reserve Bank of India on behalf of the Government of India.
What interest rate do SGB investors receive and how is it paid?
SGBs carry a fixed annual interest rate of 2.50% on the amount initially invested. However, the SGBs issued during FY 2015-16 carried a slightly higher interest rate of 2.75%.The interest is paid directly into the investor’s bank account twice a year. The final interest payment is made along with the principal amount when the SGB reaches maturity.
