Jackpot: This Gold Bond Turned Rs 5,051 into Rs 12,792; Do You Own It?

Sovereign Gold Bond: The Reserve Bank of India (RBI) has just announced the premature redemption price for the Sovereign Gold Bond (SGB) 2020-21 Series VII. This announcement brings massive gains for investors, who are set to receive an absolute return of approximately 153%. Investors who subscribed to this particular series in October 2020 can now book their profits as the initial 5-year lock-in period is complete.

How Much Profit Are Investors Making?

According to the RBI notification, the premature redemption price for this series (SGB 2020-21 Series VII) has been fixed at ₹12,792 per gram. These bonds were originally issued on October 20, 2020, at an issue price of ₹5,051 per gram.

This translates to a clear profit of ₹7,741 per gram for investors, marking a 153% absolute return on their initial investment. This is an extraordinary gain that has significantly beaten inflation and provided the full benefits of investing in gold without the hassle of storing it physically.

The Premature Redemption Facility

Sovereign Gold Bonds are typically issued for a full tenure of 8 years. However, they offer an option for premature redemption after the completion of 5 years on specific coupon payment dates. This particular series (2020-21 Series VII) was issued on October 20, 2020, and its premature redemption date is October 20, 2025. Investors who wish to avail this option must submit their application through their bank or designated agency.

How is the Redemption Price Determined?

As per RBI regulations, the redemption value of SGBs is calculated based on the simple average of the closing price of 999 purity gold for the previous three trading days (in this case, October 15, 16, and 17, 2025), as published by the India Bullion and Jewellers Association (IBJA). This ensures a transparent mechanism that reflects the current market value.

Additional Benefits of SGB Investment

SGBs provide returns from the appreciation in gold prices, but they also come with several other benefits that make them a superior investment compared to physical gold:

• Fixed Interest: Investors earn a fixed interest of 2.50% per annum on their initial investment amount. This interest is paid semi-annually and is separate from the capital gains.
• Security: As a government-backed scheme guaranteed by the RBI, there is no risk of theft or loss, unlike physical gold.
• No Purity or Making Charges: Investors do not have to worry about making charges or the purity of the gold. The bonds are held securely in demat or certificate form.
• Tax Exemption: This is the biggest advantage. If an investor holds the bond until the full 8-year maturity, the capital gains earned upon redemption are completely tax-free.

What Should Investors Do Now?

If you invested in the SGB 2020-21 Series VII, this is a crucial time to review your investment. A 153% return in 5 years is exceptionally good.

If you require the funds or wish to lock in this substantial profit, you can submit your application for premature redemption. The redemption proceeds and the final interest payment will be credited directly to your bank account.

However, before making a decision, consider your long-term financial goals. If you do not have an immediate need for the money, holding the bond for another 3 years (to complete the full 8-year tenure) will make your entire capital gain completely tax-free.