SGB 2020-21 Series-II Premature Redemption Date Arrives: Investors Poised for Potential 250% Return

Reserve Bank of India Sets Premature Redemption Price for Sovereign SGB 2020-21 Series-II

The Reserve Bank of India (RBI) has announced the premature redemption price for Sovereign Gold Bond (SGB) 2020-21 Series-II at Rs 15,904, resulting in absolute gains of 250 percent for investors.

The premature redemption rate is calculated based on the simple average of gold closing prices in the preceding three business days, as per the RBI. The redemption price is determined by the simple average of closing gold rates for 999 purity published by the India Bullion and Jewellers Association (IBJA) over the three business days preceding the exit date.

Investors who opt for premature redemption after five years from the date of issuance, on an interest payment date, will be eligible for the redemption. The SGB 2020-21 Series-II was initially issued at Rs 4,540 a gram for online buyers and Rs 4,590 for offline subscribers.

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Based on the premature redemption price of Rs 15,904, the bond will deliver an absolute return of Rs 15,904 - Rs 4,540 = Rs 11,364 a gram for online investors, translating to a return of 250.3 percent (approximately). A Rs 1 lakh investment made at the time of issuance would have grown to an estimated Rs 3.50 lakh upon premature redemption, excluding the interest earned over the holding period.

SGBs are securities issued by the RBI on behalf of the Government of India, offering bonds measured in grams of gold instead of physical gold. However, tax implications for SGBs have been revised, restricting tax benefits. Primary issue subscribers are now required to pay capital gains tax on premature redemption, while the capital gains tax exemption at maturity is restricted to original subscribers who hold their bonds for the full eight-year tenure.

Note: The table above highlights the redemption options and corresponding returns for online and offline subscribers.

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