RBI announces final redemption of first SGB issued in India from November 30, 2023, at Rs 6,132 per unit providing a gross return of 128 per cent
The Reserve Bank of India (RBI) announced that final redemption of the Sovereign Gold Bonds 2015 Series I, the first ever SGB issued in India, will be allowed starting from November 30, 2023. RBI had already laid out that the opportunity for final redemption of these bonds issued in 2015, will be after eight years when these bonds reach maturity.
As a result, RBI on November 24, 2023 announced that the final redemption price has been set at Rs 6,132 per unit of SGB. This price is determined based on the simple average of closing gold price for days from November 20 to 24, 2023, as published by the India Bullion and Jewellers Association Ltd (IBJA).
How Much This SGB Returned?
When this first Sovereign Gold Bond (SGB) was issued in 2015 its price was at Rs 2,684 per gram. Let's say an investor bought 40 grams of gold in the initial SGB issuance, totaling Rs 1,07,360 (40 grams * Rs 2,684). At redemption now, with gold priced at Rs 6,132 per gram, the total return amounts to Rs 2,45,280. Note that this is in additon to half yearly interest of 2.75 per cent an investor got so far.
In simpler terms, without considering the interest earned till now, this represents a 128.5 per cent return.
The official release during the bond's launch stated that the interest on the Gold Bonds starts from the date of issue and carries a fixed rate of 2.75 per cent per annum on the nominal value. The interest will be paid semi-annually, and the final interest payment will be made along with the principal upon maturity.
Sovereign Gold Bonds
Sovereign Gold Bonds are not subject to making charges, storage costs, and purity issues like physical gold. Moreover, no tax is levied on redemption after the maturity period.
The minimum investment is one gram, while the maximum subscription limits are 4 kg for individuals. Compared to physical gold, SGBs have lower liquidity but they are tradable on stock exchanges within a fortnight of issuance, as per RBI's notification.
Investing in SGBs can be a relatively secure option, especially during inflation or uncertain economic times. It's worth noting that gold prices are influenced by market forces and can fluctuate. While liquidity is limited for redemption, SGBs can be sold. However, selling before 36 months may incur Short-Term Capital Gains tax based on your income tax bracket. Gold investments held for over 36 months are considered long-term and taxed at 20 per cent post-indexation.
Gold has, on an average, returned 11.2 per cent in the last 20 years. Gold has consistently been in green over the last 20 years, with only negative returns observed in 2013, 2015, and 2021, according to this small case report.
Other Upcoming Redemptions
RBI also released calendar for premature redemption of Sovereign Gold Bonds (SGBs) that are slated for coupon payment till March 2024. A total of 24 series are scheduled for premature redemption till March 2024, and shown in the calendar. Check dates here