MUMBAI: The Reserve Bank has announced a premature redemption of the sovereign gold bonds (SGB) 2020-21 series-I, due on October 28, 2025, will be Rs 12,198 per unit, offering 166 percent return to investors. However this is much lower than the 325 percent premium that the RBI offered on October 23 for the final redemption of the SGB 2017 series as that was the week when the yellow metal had sniffed at $4,400 per ounce mark or over Rs 13,000 for a gram.
But since the mental had tanked more than 14 percent and on Tuesday, it was trading below $4000-mark. According to a notification issued by the RBI on October 23, the final redemption price was fixed at Rs 12,704 per unit of SGB. In a notification issued Tuesday, the central bank has announced a premature redemption price for the SGB 2020-21 series-I date as October 28.
When this series was first issued on October 28, 2020, investors who applied online paid Rs 4,589 per gram, while those who bought offline paid Rs 4,639 per gram. According to an official statement by the RBI, investors will receive the option to redeem the SGB tranche prematurely from today. Additionally, a statement has clarified that the premature redemption will be permitted after the fifth year from the date of issue of such gold bonds on the date on which interest is payable.
The SGB redemption price is calculated using the simple average closing price of gold (99.9 purity) based on data from the India Bullion and Jewellers Association. Accordingly, the premature redemption price is fixed at Rs 12,198 per unit. This price is based on the simple average of gold’s closing prices over three business days — October 23, 24 and 27, 2025.At the current redemption value, the bonds will deliver an impressive absolute return of nearly 166 percent for online investors.
In rupee terms, the gain works out to Rs 7,609 per gram (Rs 12,198 - Rs4,589) and that’s without even including the annual interest these bonds earned over the years. The SGB scheme was introduced by the government in November, 2015 as an alternative to attract digital gold ownership and also rasie money for the government as the current account deficit was too high and the rupee was under intense pressure. The bonds were issued by the RBI for and on behalf of the government.
The bonds denominated in grams of gold offered investors dual benefit-- earning a fixed annual interest of 2.5 percent on the issue price and earning capital appreciation linked to gold prices. The scheme majorly aimed to reduce the country’s reliability on imported physical gold, curb hoarding, and channel household savings into financial assets.
The bonds have a fixed term of eight years, but investors can exit after five years on interest payment dates if they wish. SGBs can also be traded on stock exchanges, transferred to others, or used as collateral for loans. According to Section 43 of the Income Tax Act, the interest on the SGBs is taxable. When an individual redeems these bonds, they are free from paying capital gains tax. Any capital gains that result from the transfer of the bonds on the exchange will be eligible for the indexation benefits.
