SGB 2018-19 Series III Investors to Realize Substantial Return on Premature Redemption
Reserve Bank of India Announces Premature Redemption Price for Sovereign Gold Bond
The Reserve Bank of India has announced the premature redemption price for Sovereign Gold Bond (SGB) 2018-19 Series III. The premature redemption price has been fixed at Rs 15,102 per unit of SGB, based on the simple average of the closing prices of gold for the last three business days, May 8, May 11, and May 12, 2026.
The redemption price reflects the average of the India Bullion and Jewellers Association (IBJA) closing rate for 999 purity gold from the three days leading up to the exit date. According to the Reserve Bank of India, premature redemption of the SGB series is allowed after five years from the date of issuance, provided the redemption is made on an interest payment date.
The SGB 2018-19 Series III was issued at Rs 3,133 per gram for online buyers, while offline subscribers paid Rs 3,183 per gram. Based on the premature redemption price, the bond will deliver an absolute return of 382.03 percent for online investors. This means a Rs 1 lakh investment in the SGB at the time of issuance would now be worth around Rs 4.82 lakh on premature redemption.
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Interest on SGBs
Sovereign gold bonds offer a fixed interest rate of 2.5 percent an annum, calculated on the initial investment amount. The interest is paid semi-annually and credited directly to the investor's bank account, with the final interest payment made at maturity along with the principal amount.
Tax Implications
From April 1, tax rules for SGBs have been revised, restricting tax benefits. Even primary issue subscribers have to pay capital gains tax on premature redemption. The capital gains tax exemption at maturity is restricted to original subscribers who hold their bonds for the full eight-year tenure. Those who bought SGBs from the secondary market will no longer qualify for tax-free redemption, even if they hold the bonds till maturity.
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Comparison of Investment Returns
| Investment Type | Investment Amount | Redemption Amount | Return on Investment |
|---|---|---|---|
| Online Buyer | Rs 1 lakh | Rs 4.82 lakh | 382.03% |
| Offline Subscriber | Rs 1 lakh | Rs 4.82 lakh | 382.03% |
Note: The return on investment is calculated based on the premature redemption price of Rs 15,102 per unit of SGB.
Investor Takeaway
Investors in SGB 2018-19 Series III can expect a substantial return on premature redemption.
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