Sone Pe Suhaaga: SGB Scheme To Give 112% Returns On Premature Redemption This Week, 20% Interest For 8 Years

Sovereign gold bonds are among the popular substitutes for physical gold in India. The Reserve Bank of India (RBI) has launched a series of SGB schemes since November 2015. While SGB schemes have a tenure of 8 years, premature redemption in these gold investments is allowed after five years of total term. At the latest, RBI has announced the premature redemption date for SGB 2017-18 Series X, which can be redeemed at a nearly 112% higher rate compared to the issue price. Apart from this, SGB 2017-18 Series X will continue to give 20% interest rates till the end of the tenure.

On December 1, 2023, RBI in its notification said, SGB 2017-18 Series X - Issue date December 04, 2017, on Sovereign Gold Bond Scheme, premature redemption of Gold Bond may be permitted after the 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 December 04, 2023.

Further, RBI added that the redemption price of SGB shall be based on the simple average closing gold price 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, the redemption price for premature redemption due on December 04, 2023, shall be Rs 6,265 per unit of SGB based on the simple average of closing gold price for three business days i.e., November 29, 30 and December 01, 2023.

The SGB 2017-18 Series X scheme when it was launched on December 4, 2017, had an issue price of Rs 2,961 per gram.

From the latest premature redemption price, this SGB scheme is offering an upside of Rs 3,304 which is without including the interest rates. In percentage terms, the scheme is offering 111.58% returns in 5 years.

The SGB scheme has a fixed rate of interest at 2.5% per annum on the nominal value. The interest shall be payable in half-yearly rests and the last interest shall be payable along with the principal on maturity.

The Gold Bonds shall be repayable on the expiration of eight years from the date of the issue of the Bonds, while premature redemption of Gold Bonds may be permitted after the fifth year from the date of issue of Bonds and such repayments will be made on the next interest payment date.

Hence, for 8 years, this scheme is going to offer a 20% interest rate till expiry.

On maturity, the Gold Bonds shall be redeemed in Indian Rupees and the redemption price shall be based on a simple average of the closing price of gold of 999 purity of the previous 3 business days from the date of repayment, published by the India Bullion and Jewelers Association Limited. The RBI/depository will inform the investor one month in advance, about the date of maturity of the Bond.

SGBs have extensive tax benefits. As per the RBI guidelines, the capital gains tax arising on redemption of these bonds to an individual is exempted. The indexation benefits will be provided to long-term capital gains arising to any person on transfer of bond.

This SGB 2017-18 Series X has outperformed even physical gold in 5 years.

Meanwhile, 22-carat physical gold which stood at Rs 49,450 per 10 grams and 24-carat gold at Rs 53,950 on December 3, 2018, has risen to all-time highs of Rs 58,540 and Rs 63,760 respectively as of date. Both 22-carat and 24-carat gold has climbed over 18% each in 5 years.

Rahul Kalantri VP of commodities at Mehta Equities said, "Sovereign Gold Bonds (SGBs) are supposed to be one of the safest methods of investing in gold as they are issued by the Reserve Bank of India (RBI) on behalf of the Government of India." He added, "In the uncertain geo-political condition, we always suggest to investors to make gold as a part of his or her portfolio."

In general terms, SGBs are government securities denominated in grams of gold.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.