Windfall returns: RBI fixes SGB early redemption at ₹10,070, 2019 20 bondholders to pocket 147% returns

The Reserve Bank of India has set August 11 as the premature redemption date for Sovereign Gold Bonds (SGB) 2019-20 Series-IX and 2020-21 Series-V, at a redemption price of ₹10,070 per unit.

SGBs have an eight-year maturity period, with early redemption permitted only after the fifth year and exclusively on interest payout dates.

For Series-IX, issued in September 2019 at ₹4,070 per gram, investors stand to gain 147% in absolute returns, or about ₹6,000 per unit, excluding the 2.5% annual interest. Buyers of Series-V, issued in August 2020 at ₹5,334 per gram, will see an 89% gain — ₹4,736 per unit — on redemption.

Apart from capital appreciation, holders earn 2.5% annual interest, credited semi-annually. For those opting for early redemption, the final interest payment will be made alongside the principal.

According to the RBI, the redemption price is determined using the simple average of the closing gold price of 999 purity over the three business days preceding the redemption date, as published by the India Bullion and Jewellers Association (IBJA). For August 11, the calculation was based on prices from August 6–8, resulting in the ₹10,070 per unit figure.

The most recent issue, SGB 2023-24 Series IV, was launched in February 2024.

What are Sovereign Gold Bonds

Sovereign Gold Bonds (SGBs) are government-backed securities issued by the Reserve Bank of India (RBI) on behalf of the Government of India, where the value is denominated in grams of gold rather than currency.

Key facts:

• Purpose – They let people invest in gold without physically buying or storing it.
• Denomination – Issued in multiples of 1 gram of gold.
• Issuer – RBI, on behalf of the central government.
• Tenure – 8 years, with the option for early redemption after 5 years (only on interest payout dates).
• Returns – Capital gains based on gold prices at redemption. Fixed annual interest of 2.5%, paid semi-annually on the initial investment amount.
• Tax treatment – Capital gains on redemption by individuals are tax-free, but interest income is taxable.
• Safety – Since they are government-backed, there’s no default risk, and no issues with gold purity.

Think of it as digital gold that earns you interest, while tracking gold’s market price.