Sovereign Gold Bond Premature Redemption Window Opens Today: SGB 2020-21 Series IX Has Given Three-Fold Gains In 5 Years

The Reserve Bank of India said that the SGB will be available for premature redemption, and the price will be based on the average of the closing price of gold of 999 purity during the previous three business days till January 2. The RBI set the redemption price of the tranche at Rs. 13,381 per unit of the SGB.

“The redemption price of SGB shall be based on the simple average of the closing price of gold of 999 purity of the previous three business days from the date of redemption, as published by the India Bullion and Jewellers Association Ltd (IBJA),” according to the RBI.

At the time of issuance, the SGB was priced at Rs. 5,000 per gram during the subscription period in December 2020. This shows that the price appreciation per unit is at Rs. 8,381, which is 167.6 per cent over the last five years.

The appreciation is over and above the 2.5 per cent annual interest, which was paid semi-annually to investors holding the bond during the period. Online investors who invested during the issue received a discount of Rs. 50 per gram. For such investors, the issue price of the SGB was Rs. 4,950 per gram.

The SGB was originally issued for eight years, but the premature redemption date is applicable five years from the issuance date, and the exit date also coincides with the date of interest payment for the bond.

Investors holding gold or gold bonds have seen significant returns over the past year. In the last months alone, the price of gold per 10 grams on the MCX has gained over 38 per cent to Rs. 13,751. Most tranches of SGBs over the past year have generated three times the return on investors’ initial investment.