The Reserve Bank of India (RBI) has announced the final redemption price for (SGB 2018-19 Series-II-Issue date October 23, 2018). According to a statement from the RBI, gold bond investors will have the option to redeem this SGB tranche prematurely on October 23, 2026.
The tenure of SGB is eight years and the premature redemption of the SGB series is permitted after the fifth year from the date of the issue of such gold bonds on the date on which interest is payable, as per the statement from the RBI.
How is the SGB redemption price calculated?
The gold bond series’ redemption price is calculated based on the simple average closing price of the gold of 999 purity published by the India Bullion and Jewellers Association (IBJA) for the preceding three working days, the RBI statement further said.
What is the final redemption price for SGB 2018-19 Series-II?
The final redemption price due on October 23, 2026, has been fixed at Rs 14,425 per unit of the SGB, based on the simple average of the closing price of gold for the last three business days, i.e., October 19, October 21 and October 22, 2026.
The SGB 2018-19 Series-II was issued at Rs 3,096 per gram for online purchases. It will yield an absolute simple return of around 366% on the date of the final redemption.
The absolute return is Rs 14,425− Rs 3,096 = Rs 11,329. (without factoring in the interest). In percentage terms, it is Rs 11,329÷ Rs 3,096 × 100 = 365.79%
A 365.79% return means that an investment of Rs 1 lakh in this SGB has grown to approximately Rs 4.66 lakh.
Will there be tax on the SGB final amount?
As per the HDFC Bank website, “Capital gains at maturity (8 years) are tax-free, incentivising long-term investment. Early redemption or selling in the secondary market subjects gains to standard short-term or long-term capital gains tax.”
Important frequently asked questions (FAQs) about SGBs-
What is a Sovereign Gold Bond (SGB)? Who is the issuer?
As per the RBI website, SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price and the bonds are redeemed and paid back to investors on maturity. The gold bond is issued by the RBI on behalf of the government.
What is the rate of interest SGB investors get on their investment and how is the interest paid?
The bonds bear interest at the rate of 2.50% (fixed rate) per annum on the amount of the initial investment. However, SGBs issued in the Financial Year 2015-16 offered an interest rate of 2.75%.