SGB 2019-20 Series-II premature redemption due today; investors to pocket 318% return

The Reserve Bank of India (RBI) has announced the next premature redemption date of Sovereign Gold Bond (SGB) 2019-20 Series-II as July 16, 2026. The bond was issued on July 16, 2019.

According to RBI, though the tenure of the bond is eight years, early encashment/ redemption of the bond is allowed after the fifth year from the date of issue on coupon payment dates.

In terms of GOI notification F.No.4(7)-B(W&M)/2019 dated May 30, 2019 (SGB 2019-20 Series-II-Issue date July 16, 2019) on Sovereign Gold Bond Scheme, 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 July 16, 2026, RBI said.

The RBI has also announced the premature redemption price at ₹14,199 per unit of SGB. The premature redemption price of SGB is based on a simple average of the closing price of gold of 999 purity of the previous three business days from the date of redemption, as published by the India Bullion and Jewellers Association Ltd (IBJA). Accordingly, for computing the redemption price, the closing price of gold for the previous three business days i.e., July 13, July 14, and July 15, 2026 has been taken into account.

At the issue price of ₹3,393 per gm for online buyers, by investing around ₹1,01,790, an investor would have got 30 SGB units. And considering the announced premature redemption price at ₹14,199, his/ her investment will now be worth ₹4,25,970. This implies an absolute return of 318%.

Importantly, the request for premature redemption will only be considered if the investor approaches the concerned bank/ Post Office at least one day before the coupon payment date.