Summary of this article
SGB 2019-20 Series-VIII opens for premature redemption today
Premature redemption price of the bond is at Rs. 14,432 per unit
The Reserve Bank of India (RBI) announced that the premature redemption for Sovereign Gold Bonds (SGB) 2019-20 Series-VIII will be available from January 21, five years from the date of issuance of the bond. Accordingly, the price at which the premature redemption will be available is at Rs. 14,432 per unit of the gold bond.
What was the issue price of the gold bond
The gold bond in question was issued at a price of Rs. 4,016 per gram for investors who bought the gold bond over the counter. For online investors, as a discount of Rs. 50 on the price was applied for the SGB 2019-20 Series-VIII bond, which was paid for through digital mode. The issue price of the bond for online investors was Rs. 3,966 per gram.
Premature Redemption
For gold bonds, the premature redemption is typically available after five years since the issue of the bond. The SGB 2019-20 Series-VIII bond was issued on January 21, 2020, and has three more years to mature.
The redemption price of the gold bond will be based on the simple average closing price of gold of 999 purity on the previous three business days from the redemption date. Accordingly, the closing price of gold on January 16, January 19, and January 20, as published by the India Bullion and Jewellers Association Ltd (IBJA), was taken into account to arrive at the redemption price.
How much return is the bond giving
The SGB 2019-20 Series- VIII is giving nearly four times the return to investors. With the bond being issued at Rs. 3,966 per gram and the premature redemption at Rs. 14,432 per unit, the return on the bond in absolute terms is nearly 264 per cent.
This calculation does not factor in the interest rate on the bonds. SGBs have an interest rate of 2.50 per cent annually on the initial amount of investment. This interest is credited biannually to the investor. The last instalment of interest will be payable on the date of maturity of the bond, along with the principal amount invested initially.
The SGB scheme is managed by the RBI on behalf of the Government of India. The scheme offers investors a secure way, with a paper or demat alternative for them to hold physical gold. This also removed concerns of storing the gold or the purity of the metal.
