SGB 2020-21 Series-VIII investors can get up to 212% gains on premature redemption today

The Reserve Bank of India (RBI) allows premature redemption of Sovereign Gold Bonds (SGBs) post the completion of 5 years in the scheme on the date of interest payment. For SGB 2020-21 Series VIII issue that was issued on November 18, 2020, the premature redemption becomes due today, May 18, 2026.

The RBI has fixed the premature redemption price at ₹16,012. The redemption price of SGB is decided based on the 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). Here the 3 business days considered for determining the rate are May 13, May 14 and May 15.

The issue price for the Sovereign Gold Bond (SGB) 2020-21 Series VIII was ₹5,127 per gram for online applicants and ₹5,177 per gram for offline applicants.

So, given the determined redemption price, investors will be able to make a maximum profit of 212% on their initial investment.

As per the RBI’s FAQs, SGBs offer the following benefits:

1. The quantity of gold for which the investor pays is protected, since he receives the ongoing market price at the time of redemption/ premature redemption.
2. The SGB offers a superior alternative to holding gold in physical form.
3. The risks and costs of storage are eliminated.
4. Investors are assured of the market value of gold at the time of maturity and periodical interest.
5. SGB is free from issues like making charges and purity in the case of gold in jewellery form.
6. The bonds are held in the books of the RBI or in demat form eliminating risk of loss of scrip etc.

Fresh SGB issuance stopped, you can still buy them from secondary market

The government has for the time being halted fresh issuance of SGBs as the increasing price of the bullion has raised its borrowing cost.

Nonetheless, investors interested in tapping the SGBs can still buy them from the secondary market.

And even be eligible for the 2.5% interest rate payable semi-annually i.e. every six months into the bank account linked to your demat account.