SGB 2020-21 Series VII premature redemption: SGBs nearly triple investors' money as RBI sets October 19 redemption price

The Reserve Bank of India (RBI) has announced the premature redemption price for Sovereign Gold Bond (SGB) 2020-21 Series VII at ₹14,614 per unit. The redemption is due on October 19, 2026, as October 20, 2026, falls on a holiday.

The bonds were originally issued at ₹5,051 per gram in October 2020. Investors who applied online and made payments through digital mode received a discount of ₹50 per gram, bringing their effective issue price to ₹5,001 per gram.

At the announced redemption price, investors who purchased the bonds at the regular issue price will earn a capital gain of ₹9,563 per gram, excluding interest and taxes.

What was the original issue price of SGB 2020-21 Series VII?

The subscription window for SGB 2020-21 Series VII was open from October 12 to October 16, 2020, with the bonds issued on October 20, 2020.

The Ministry of Finance announced an issue price of ₹5,051 per gram. Eligible investors applying online and paying digitally received a discount of ₹50 per gram, reducing the issue price to ₹5,001 per gram.

SGB 2020-21 Series VII: How much will investors gain?

With the premature redemption price fixed at ₹14,614 per unit, the returns for investors are as follows:

These calculations reflect the increase in the gold-linked redemption value and exclude the interest earned during the holding period.

What if you invested ₹1 lakh in SGB 2020-21 Series VII?

At the redemption price of ₹14,614 per unit, the investment would be worth approximately ₹2.89 lakh.

The estimated capital gain would be around ₹1.89 lakh, equivalent to an absolute return of approximately 189.3%, excluding interest and taxes.

Investors who purchased the bonds at the discounted price of ₹5,001 per gram would have earned a slightly higher return.

How is the SGB premature redemption price calculated?

Under the Sovereign Gold Bond Scheme, premature redemption is permitted after the fifth year from the date of issue, on an interest payment date.

For SGB 2020-21 Series VII, the relevant business days were October 14, October 15 and October 16, 2026. Based on the average gold prices for these dates, the redemption price was fixed at ₹14,614 per unit.

SGB investors also earn interest

Apart from capital appreciation, Sovereign Gold Bonds carry a fixed interest rate of 2.5% per annum on the original investment amount, payable semi-annually.

Disclaimer: This article is written purely for informational purposes and should not be considered investment advice from Upstox. Securities mentioned are illustrative and not recommendations. Investors should do their own research or consult a registered financial advisor before making investment decisions.