SGB 2019-20 Series VI premature redemption today: Investors to earn up to 275% gains; check RBI fixed price

SGB 2019-20 Series VI premature redemption today: Investors to earn up to 275% gains; check RBI fixed price. (AI-generated image for representational purposes only)AI Quick ReadThe Reserve Bank of India (RBI) has announced a premature redemption price of ₹14,213 per gram for Sovereign Gold Bonds (SGB) 2019-20 Series VI. Investors holding this tranche can redeem their bonds today, 30 October.

Sovereign Gold Bonds are government securities denominated in grams of gold and issued by the RBI on behalf of the Government of India. They allow investors to participate in gold price movements without having to purchase or store physical gold.

According to the RBI's press release on Thursday, “Premature redemption of Gold Bond may be permitted after fifth year from the date of issue of such Gold Bond on the date on which interest is payable. Accordingly, the next due date of premature redemption of the above tranche shall be on October 30, 2026.”

The bonds were originally issued on 30 October 2019, allowing investors to redeem their investments after completing seven years.

The redemption value of an SGB is linked to the prevailing market price of gold. “The redemption price of SGB shall be based on simple average of closing price of gold of 999 purity of previous three business days from the date of redemption, as published by the India Bullion and Jewellers Association Ltd (IBJA),” the release mentioned.

The RBI considered the closing gold prices recorded on 27 October, 28 October and 29 October. Based on their simple average, the central bank fixed the redemption price of SGB 2019-20 VI at ₹14,213 per gram.

According to a Ministry of Finance release issued by the Press Information Bureau (PIB) on 21 October 2019, the original issue price of SGB 2019-20 Series VI was set at ₹3,835 per gram for investors who subscribed through offline mode.

Investors who had applied online and made payments through digital modes received a ₹50 per gram discount, bringing their purchase price to ₹3,785 per gram.

At the latest premature redemption price of ₹14,213 per gram, the capital gains are listed below.

An offline subscriber would make a capital gain of ₹10,378 per gram, equivalent to 270.61% of the original investment. For online subscribers, the gain would be ₹10,428 per gram, translating into a return of 275.51%.

Apart from the appreciation in gold prices, Sovereign Gold Bonds offer fixed interest of 2.5% per annum on the nominal value of the bond. The interest is paid twice a year, while the final interest instalment is payable along with the redemption amount.

For the SGB 2019-20 Series VI tranche, interest is calculated on the bond's nominal value of ₹3,835 per gram.

For example, an investor who purchased 10 grams of SGBs for ₹38,350 would receive ₹958.75 in annual interest at the prescribed rate of 2.5%. Over seven full years, the estimated interest income would amount to ₹6,711.25.

These calculations assume seven full years of interest payments and exclude applicable taxes. Actual interest received will depend on the payment schedule and the investor's holding period.

Disclaimer: This is for informational purposes only. Please consult a SEBI-registered investment adviser before making any investment decisions.