Investors who purchased the Sovereign Gold Bond (SGB) 2021-22 Series VI in September 2021 have a lot to cheer about. The RBI has fixed the premature redemption price of the series at Rs 15,334 per unit for September 7, 2026.
The bond was issued in September 2021 at Rs 4,682 per gram for online investors. With the current redemption price, the investment has generated an absolute return of about 228% in the five years.
Rs 1 Lakh investment could become Rs 3.28 Lakh
An investor who put Rs 1 lakh into SGB 2021-22 Series VI at the time of issue would see the gold-linked value of the investment rise substantially.
At the issue price of Rs 4,682 per gram and the current redemption price of Rs 15,334 per unit, the investment value is around Rs 3.28 lakh.
This calculation only considers the appreciation of the value of the gold bond. It does not include the interest received by investors during the holding period.
SGBs offer a fixed interest rate of 2.5% per annum based on the initial investment amount. The interest is paid to investors every six months. So the total benefit for investors who held the bonds for five years would be higher if the interest payments are included.
Five years completed for SGB 2021-22 Series VI
The SGB 2021-22 Series VI was issued on 7 September 2021. In the Sovereign Gold Bond scheme, premature redemption is allowed after five years from the date of issue.
September 7, 2026, therefore, is the first eligible premature redemption date for investors who bought this series.
SGBs are government securities issued by the RBI and are denominated in grams of gold. They provide investors with exposure to gold without purchasing or storing actual gold.
How is the SGB Redemption Price calculated?
The redemption price of an SGB is linked to the prevailing price of 999-purity gold.
For early redemption, the price is determined by the simple average of the closing price of gold for the past three business days. These prices are released by the India Bullion and Jewellers Association (IBJA).
For the redemption on September 7, 2026, gold prices on September 2, September 3 and September 4, 2026 were considered for the redemption price.
Based on these prices, the RBI fixed the redemption price at Rs 15,334 per unit.
Investors Get Gold Appreciation Plus Interest
One of the advantages of SGBs is that investors can earn from gold price appreciation and interest income as well.
Unlike physical gold, SGB investors do not have to worry about storage, making charges or the security issues of keeping gold at home. At the same time, the bonds have a fixed annual interest of 2.5% on the original investment amount.
However, investors should note that the Rs 3.28 lakh figure is an approximate redemption value for a Rs 1 lakh initial investment and excludes the 2.5% interest received during the holding period.
So the SGB scheme has provided investors in this series with a combination of gold-linked capital appreciation and periodic interest income over the five-year holding period.
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