For SGB 2019-20 Series IX, issued on February 11, 2020, at ₹4,070 per gram, the redemption price represents a 267.5% increase over the original issue price. Investors who subscribed through the online digital route at ₹4,020 per gram would see a capital gain of about 272%.
The bond was issued with a 2.5% annual interest rate and is scheduled to mature on February 11, 2028. Investors opting for premature redemption on August 11, 2026, therefore exit about 18 months before the scheduled maturity.
For SGB 2020-21 Series V, issued on August 11, 2020, at ₹5,334 per gram, the redemption price translates into a 180.4% capital gain. The issue price for investors making online payments was ₹5,284 per gram, implying a gain of about 183.0% at the August 11 redemption price.
This tranche also carries a 2.5% annual interest rate and is scheduled to mature on August 11, 2028.
How is the SGB redemption price calculated?
The redemption price for premature SGB redemption is based on the simple average of the closing price of 999-purity gold for the previous three business days, as published by the India Bullion and Jewellers Association (IBJA).
For the August 11, 2026 redemption, the three business days considered were August 6, August 7 and August 10. The resulting redemption price was fixed at ₹14,957 per gram.
Premature redemption is permitted only after five years from the date of issue, and it is available on the date on which interest is payable.What should SGB investors keep in mind?
The percentage gains above represent the increase in the redemption value over the original issue price. They do not include the 2.5% annual interest already paid to investors. Therefore, the overall return for an investor who has held the bonds through the relevant interest-payment periods would be higher than the capital appreciation alone.
However, investors considering premature redemption should also compare the current SGB value with the remaining maturity period and their investment objective. The 2019-20 Series IX, for instance, still has about 18 months until its scheduled maturity, while the 2020-21 Series V has two years left.
Investors should also remember that the redemption price is linked to the prevailing domestic gold price. A high redemption value reflects the rise in gold prices since the respective SGBs were issued; it should not be interpreted as a fixed or guaranteed return for SGB investors generally.
The 2.5% annual interest is paid separately and is calculated on the initial investment amount, rather than the prevailing market value of the bond. Thus, the interest component does not rise as the gold-linked value of the SGB increases.
