The Reserve Bank of India (RBI) has announced the premature redemption price for Sovereign Gold Bond SGB 2019-20 Series-VIII-Issue date January 21, 2020. According to a statement from the central bank, investors will have the option to redeem this SGB tranche prematurely from July 21, 2026. The premature redemption of the SGB series will be permitted after the fifth year from the date of the issue of such gold bonds on the date on which interest is payable, as per the RBI statement.
How is the SGB redemption price calculated?
The redemption value is calculated based on the simple average closing price of the gold of 999 purity published by the India Bullion and Jewellers Association (IBJA) for the preceding three working days, as per an RBI rule.
What is the premature redemption price for SGB 2019-20 Series-VIII?
The premature redemption price due on July 21, 2026, has been fixed at Rs 14,170/per unit of SGB, based on the simple average of the closing price of gold for the last three business days, i.e., July 16, July 17 and July 20, 2026.
The SGB 2019-20 Series-VIII was issued at Rs 3,966 per gram for online bonds. It will yield an absolute simple return of nearly 257% on the date of premature redemption.
The absolute return comes to be Rs 14,170-Rs 3,966 = Rs 10,204 (without factoring in interest). In percentage terms, this translates into an absolute return of 257.29%.
So, the investment has generated an absolute return of Rs 10,204, or about 257% (excluding the interest earned).
For investors who bought SGBs of the same series offline, the issue price was Rs 4,016 per gram of gold. A Rs 50 discount was available on the online purchase of the SGB.
An absolute return of 257.29% means that an investment of Rs 1 lakh in this Sovereign Gold Bond (SGB) series at the time of its issuance in 2020 has grown to around Rs 3.57 lakh on premature redemption, excluding 2.5% annual interest paid by the government.
SGB premature redemption tax rules: Do SGB investors need to pay tax on capital gains?
The taxability of Sovereign Gold Bonds redeemed on or after April 1, 2026, shall be as follows:
- Purchased at the time of original issue and held continuously till maturity: Exempt
- Not purchased at the time of original issue but held till maturity: Taxable
- Purchased at the time of original issue but not held till maturity: Taxable
- Neither purchased at the time of original issue nor held till maturity: Taxable
The tax exemption on the redemption of SGBs at maturity will continue to be available only in cases where the bonds were subscribed at the time of initial issuance by the central government.
What is a Sovereign Gold Bond (SGB)? Who is the issuer?
SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds are redeemed in cash on maturity. The bonds are issued by the RBI on behalf of the Government of India.
What is the rate of interest most SGBs provide and how is the interest paid?
Most bonds bear interest at the rate of 2.50% (fixed rate) per annum on the amount of the initial investment. Interest is credited semi-annually to the bank account of the investor and the last interest is payable on maturity along with the principal. SGBs issued in the 2015-16 financial year offered an interest rate of 2.75%. But SGBs issued later offered a 2.50% interest rate.
