SGB 2019-20 Series X delivers 264% return: RBI sets exit price at Rs 15,328 | Personal Finance
Investors in Sovereign Gold Bond (SGB) 2019-20 Series X can opt for premature redemption from September 11, 2026, with the Reserve Bank of India (RBI) fixing the redemption price at Rs 15,328 per unit.
The tranche was originally issued on March 11, 2020, at Rs 4,210 per gram for investors who subscribed online.
At the latest premature redemption price, the gold bond has delivered an absolute capital appreciation of about 264 per cent, excluding the interest paid during the holding period.
This means an investor who had put Rs 1 lakh into the SGB at the time of issue would see the value of the investment rise to about Rs 3.64 lakh on premature redemption, before accounting for the interest received over the years.
How is the SGB redemption price decided?
The RBI does not simply use the latest gold price to determine the amount paid to an investor.
For premature redemption, the price is based on the simple average of the closing price of 999-purity gold for the three preceding working days, with the price published by the India Bullion and Jewellers Association (IBJA).
For SGB 2019-20 Series X, the relevant closing prices were those for September 8, 9 and 10, 2026. Based on this calculation, the RBI fixed the premature redemption price at Rs 15,328 per unit.
The redemption price therefore reflects the prevailing value of gold rather than the original issue price of the bond.
What return has the SGB generated?
The bond was issued at Rs 4,210 per gram. Against the premature redemption price of Rs 15,328, the capital gain works out to Rs 11,118 per unit.
That translates into an absolute return of about 264.08 per cent.
For example, if an investor bought 23.75 units for Rs 1 lakh at the issue price, the investment would be worth roughly Rs 3.64 lakh at the premature redemption price. The calculation excludes the interest paid on the SGB.
The actual overall return for investors is higher because SGBs also pay fixed interest.
SGB investors also earn interest
SGBs carry a fixed interest rate of 2.5 per cent a year, calculated on the initial investment amount. The interest is paid twice a year directly into the investor’s bank account.
This is an important difference between SGBs and physical gold. A person holding physical gold does not receive periodic interest, while an SGB investor gets an additional cash return during the holding period.
However, the 2.5 per cent interest is calculated on the original amount invested, and not on the increased market value of the gold bond.
When can SGBs be redeemed before maturity?
SGBs normally have an eight-year maturity period. However, investors are allowed to seek premature redemption after the fifth year from the date of issue, subject to the redemption falling on an interest-payment date.
This means an investor does not have to wait for the full eight-year term to exit once the applicable five-year period has been completed.
For the 2019-20 Series X tranche, the RBI has now announced the applicable premature redemption price, allowing eligible investors to consider whether they want to exit or continue holding the bond.
Should investors redeem now?
A high return on the gold component alone does not automatically mean that redemption is the best option.
Investors should consider why they bought the SGB, their need for liquidity and their view on gold prices before deciding. Those who continue holding the bond can remain exposed to changes in gold prices and continue to receive the applicable interest until redemption or maturity.
SGBs are government securities denominated in grams of gold and were designed as an alternative to holding physical gold. The RBI issues them on behalf of the Government of India.
Therefore, the decision to redeem should be based on the investor’s overall asset allocation and financial goals rather than the headline return alone.
