This series of Sovereign Gold Bonds can give you 205% return on premature redemption

The Reserve Bank of India (RBI) has declared a premature redemption price for the Sovereign Gold Bonds (SGB) 2018-19 Series-V, set at Rs 9,820 per unit. This announcement comes as the bonds are due for redemption on 22 July 2025. These gold bonds, initially issued at Rs 3,214 per gram in January 2019, are now offering an impressive 205% return, calculated as the difference between the current redemption price and the issuing price. Investors who choose premature redemption can realise substantial returns, as the SGBs mature eight years post-issuance, with early redemption permissible after five years. This provides a flexible exit option for investors looking to capitalize on their investment earlier.

The SGB 2018-19 Series-V was initially issued in January 2019 at Rs 3,214 per gram. With the current redemption price at Rs 9,820 per gram, the absolute gain from premature redemption stands at Rs 6,606 per gram. 

The redemption price is calculated based on the simple average of the closing gold prices of 999 purity for the three business days preceding the redemption date, as reported by the India Bullion and Jewellers Association Ltd (IBJA). "The redemption price of SGB shall be based on the simple average of the closing gold price 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)," stated the RBI. This method ensures that the redemption value reflects the current market conditions, providing a fair and transparent mechanism for investors. 

Interest rate of SGBs

The SGBs offer an annual interest rate of 2.50% on the initial investment, payable semi-annually, with the final interest payment coinciding with the principal repayment at maturity. This makes SGBs a lucrative option for investors seeking to hedge against inflation while earning a fixed income. The bonds are government securities denominated in grams of gold, intended as substitutes for holding physical gold. By investing in these bonds, investors can avoid the risks and costs associated with storing physical gold, thereby ensuring a safer investment.

Investing in SGBs

In the broader market context, SGBs provide an alternative to physical gold investment by offering a secure and less volatile investment avenue, attracting those wary of the fluctuating gold market. While the gold market has seen various trends, including recent volatility, SGBs continue to guarantee returns with the added benefit of interest payments. This initiative by the RBI supports the government’s aim to reduce the demand for physical gold, thereby cutting imports and improving the trade balance. The stability of SGBs makes them a preferred choice for conservative investors who value security and steady returns. 

SGBs remain tradable on stock exchanges if held in dematerialised form, with investors able to transfer them to eligible holders. The RBI's announcement marks a significant financial milestone for bondholders, reflecting the efficacy of SGBs as a stable investment. As the market evolves, interest in these bonds remains robust, offering a compelling option for investors looking for security and profitability. The tradability of these bonds adds liquidity, making them an attractive proposition for both individual and institutional investors. This feature enhances their appeal, providing flexibility and ease of access to the market.