Summary of this article
RBI preponed SGB Series-XI premature redemption to August 7.
Investors can redeem their holdings at Rs 14,564 per unit.
Early redemption offers investors almost triple their initial investment.
The Reserve Bank of India (RBI) has announced the premature redemption price for the 2020-21 Series-XI tranche of the Sovereign Gold Bond scheme. Notably, the tranche was issued on February 09, 2021.
However, the premature redemption date has been brought forward by the RBI to August 7, 2026 instead of August 09. The decision has been taken as August 9 falls on a weekend.
SGB 2020-21 Series-XI Premature Redemption Date
Investors who hold units of SGB 2020-21 Series-XI can redeem their holdings on August 7. RBI norms allow the premature redemption of SGBs five years from the date of issue on dates when the interest is payable. The five-year window allows investors who hold SGBs to liquidate their holdings before the end of the eight-year maturity period.
How Much Will SGB 2020-21 Series-XI Investors Gain?
Investors can prematurely redeem their SGB 2020-21 Series-XI holdings at a price of Rs 14,564 per unit, according to a release by the RBI. The tranche was issued at Rs 4,862 per gram, for online investors as they were offered a digital discount of Rs 50. On the other hand, the issue price was fixed at Rs 4,912 for investors who purchased their SGBs offline.
"Accordingly, the redemption price for premature redemption due on August 7, 2026 (August 08 and August 09 being holiday) shall be Rs 14,564/- (Rupees Fourteen Thousand Five Hundred and Sixty Four Only) per unit of SGB based on the simple average of closing price of gold for the three business days i.e., August 4, August 5, and August 6, 2026," RBI said.
Given the redemption price set by RBI, investors who purchased the SGB units online are set to get an absolute return of approximately 199.50 per cent or roughly triple their original investment if they prematurely redeem their holdings. Online investors are set to get absolute capital gains of Rs 9,702 per unit, while offline buyers will see gains of Rs 9,652 per unit upon premature redemption.
How Is The Premature Redemption Price Calculated?
The premature redemption price for SGBs is computed using the simple average of closing price of gold of 999 purity of previous three business days from the date of redemption, as published by the India Bullion and Jewellers Association Ltd (IBJA).
For the SGB 2020-21 Series-XI, the premature redemption price was calculated on the basis of the simple average of the closing prices on August 4, August 5, and August 6, 2026. On August 4, the price of gold stood at Rs 14,293.80 per gram, on August 5 the price stood at Rs 14,557.70 per gram and on August 6 the price stood at Rs 14,836.10 per gram.
SGB investors who purchased the bond would have also gained an annual interest at the fixed rate of 2.50 per cent in addition to the amount they get upon redemption. However, this interest is credited semi-annually directly to the bank account of investors and remains taxable as per the income tax slab of the investor.
India’s Shift Towards Paper Gold
Investors have increasingly shown more interest in gaining alternatives to physical gold. These alternatives can potentially circumvent challenges related to safety, storage costs, and purity.
Moving from physical gold to paper gold can unlock market-linked returns and lower ownership costs for investors. SGBs also provide an avenue for doing so. However, as no new tranches have been announced, investors can consider other paper gold options, such as electronic gold receipts (EGRs) and gold exchange traded funds (ETFs).
