Investors in Sovereign Gold Bonds (SGBs) are celebrating substantial returns as the Reserve Bank of India (RBI) has announced early redemption for specific series, allowing bondholders to liquidate their investments before the maturity date and secure significant profits.
RBI Announces Early Redemption
The RBI has officially declared the premature redemption price for the Sovereign Gold Bond (SGB) Scheme 2020-21 Series-I, enabling investors who purchased SGBs under this series to redeem their bonds early. The early redemption option is available after completing five years from the date of issue, even though the bonds have an eight-year term.
Impressive Returns for Investors
These SGBs have not only tracked the price of gold but have also provided a fixed annual interest, paid every six months. Investors in the SGB 2020-21 Series VII, issued on October 20, 2020, are set to gain a 153% return on their investment. The redemption price for this series has been fixed at ₹12,792 per gram, based on the average gold price from October 15 to 17, 2025. At the time of issuance in October 2020, the bond price was ₹5,051 per gram. This translates to an effective profit of approximately ₹7,741 per gram, excluding the semi-annual interest of 2.5% offered on the bonds. Similarly, investors in SGB 2018-19 Series-III, with an issue date of November 13, 2018, can redeem their bonds on November 13, 2025. The redemption price is set at Rs 12,350 per unit, offering an absolute simple return of nearly 295%. For SGBs due for early redemption on July 22, 2025, the redemption value is set at Rs 9,820 per unit. Launched in January 2019 at Rs 3,214 per gram, these bonds offer a 2.50% annual interest and provide a substantial return.
How Redemption Works
Investors will receive the redemption amount directly in their bank accounts linked to the SGB. The value is calculated based on the latest gold price and the fixed interest component of the bond. The redemption price of SGBs is based on the simple average of the closing gold price of 999 purity for the previous three business days from the date of redemption, as published by the India Bullion and Jewellers Association Ltd (IBJA).
Benefits of Sovereign Gold Bonds
SGBs offer several advantages over holding physical gold:
- Capital Appreciation: Linked to gold prices, providing potential capital gains.
- Fixed Interest Payout: Investors receive a fixed interest payout of 2.5% per annum on their investment. The interest is credited semi-annually to the investor's bank account.
- Tax Benefits: SGBs offer tax benefits on capital gains if held until maturity, making them more attractive than physical gold.
- Safe and Secure: SGBs eliminate risks such as theft, purity issues, and making charges, while ensuring secure investment through demat accounts. The bonds are maintained in RBI books or demat accounts, reducing the risk of loss.
- Convenient: SGBs provide a hassle-free and safe way to invest in gold without the need to store physical gold.
Financial Implications and Why It Matters
Early redemption allows investors to reinvest profits or meet immediate financial goals. Those who held SGBs from the mentioned series can now enjoy substantial gains without waiting for full maturity. This demonstrates the stability and attractiveness of sovereign-backed gold investments and encourages more investors to consider SGBs as an alternative to physical gold or other fixed-income instruments. The RBI's early redemption announcement is excellent news for investors, offering a safe, high-return avenue to capitalize on gold price growth while enjoying government-backed security.
