Sovereign Gold Bonds are one of the most sought-after gold investments available at present. The Sovereign Gold Bonds (SGB) are government securities denominated in grams of gold, offering an alternative mode of investment to physical gold. The government-backed gold bonds were initially issued by the Reserve Bank of India on behalf of the government. However, in the past three months, the RBI has not issued any new series of SGBs, with talks suggesting that the government may withdraw the scheme due to various reasons.
Although the gold bonds, which were launched in 2015, have an eight-year tenor, the investors do have an option to exit after the fifth year on interest payment dates. They offer a fixed interest rate, currently set at 2.5% per annum, payable semi-annually.
On September 17, 2024, two SGB series – SGB 2016-17 Series IV and SGB 2019-20 Series IV were up for early redemption.
The SGB 2016-17 Series IV was issued on March 17, 2017, at an issue price of Rs 2,943. The premature redemption price was fixed at Rs 7,196 after 7.5 years, which is about 149% above the original issue price. This is an XIRR (extended internal rate of return) of 14.5% with adjustments for coupon payments for investors who held the bond since its launch.
The SGB 2019-20 Series IV was issued on September 17, 2019, at an issue price of Rs 3,890. The RBI set the premature redemption price at Rs 7,278 after 5 years, leading to an XIRR of 15.7% adjusted for coupon payments. These bonds provide investors with an opportunity to invest in gold in a paper form with the added benefit of a fixed interest rate, making them an attractive investment option for those looking to diversify their portfolio with gold-backed securities.
For investors seeking early exits, there is the option of utilizing the buyback facility, which enables redemption at the conclusion of the fifth, sixth, and seventh years. Unitholders can initiate their redemption inquiries during the stipulated periods via the Reserve Bank of India’s (RBI) receiving offices, National Securities Depository Limited (NSDL), Central Depository Services Limited (CDSL), or the RBI Retail Direct platform.
Last month, the Reserve Bank of India announced the dates for premature redemption of other SGB series that were issued between May 2017 and May 2020. The redemption exercise would start from October 11 and February 7, 2025, wherein the redemption price will be announced by the central bank based on the average gold price on the last three days before maturity.
The initial redemption period for SGBs issued on May 12, 2017, is set to occur from October 11, 2024, to November 2, 2024. The redemption funds will be transferred to the investor’s account on November 12. Redemption requests can be made within a 20-day window. Once a redemption request is submitted, the redemption amount with accrued interest will be credited to the investor’s account within 10 days.