First Ever Sovereign Gold Bond (SGB) Issue Set to Yield High Returns on Maturity

Key Takeaways:

1. The first tranche of Sovereign Gold Bonds (SGB) issued by the Reserve Bank of India (RBI) in November 2015 is due for maturity in November 2023.
2. Investors in this maiden tranche of SGB are expected to receive significant returns as the price of gold has more than doubled in the last 8 years.
3. The redemption price of the SGB is fixed in Indian Rupees based on the previous week’s simple average closing price for gold of 999 purity, published by India Bullion and Jewellers Association (IBJA).
4. The premature redemption price of the SGB scheme for 2017-18 Series I has been set at Rs 6,116 per gram of gold, and it is likely that the price at maturity of the first SGB issue would be around this price.
5. The SGB allows a minimum investment of 2 grams and a maximum of 500 grams per person per financial year.

The Sovereign Gold Bond (SGB) scheme was introduced by the Reserve Bank of India (RBI) in November 2015 to provide an alternative to purchasing physical gold. The scheme allows individuals to invest in gold in the form of bonds, which are denominated in grams of gold. These bonds offer a fixed interest rate and the potential for capital appreciation based on the price of gold.

Maturity and Return

The first tranche of Sovereign Gold Bonds (SGB) issued by the RBI is due for maturity in November 2023. Investors who participated in this maiden tranche are likely to earn good returns on their investment due to the significant increase in the price of gold over the past 8 years.

The issue price of the first SGB in 2015 was Rs 2,684 per gram. The maturity price of the SGB is yet to be determined and announced by the RBI, but it is expected to be based on the simple average closing price for gold of 999 purity, published by India Bullion and Jewellers Association (IBJA).

As per the scheme rules, the SGB allows a minimum investment of 2 grams and a maximum of 500 grams per person per financial year. An example provided in the source article gives an idea of the returns an investor is likely to get from the first SGB issue on maturity. Suppose an investor is holding 37 grams of gold via the first issue of SGB. The investment was made at the price of Rs 2,684, making the investment amount equal to Rs 99,308. Assuming the maturity price on redemption is Rs 6,130 per gram, the investor will get Rs 2,26,810. This represents a return of 128% without taking interest earned on the SGB into account. In CAGR terms, the returns come out to be 10.88%.

Interest Rate

The SGB offered a fixed interest rate of 2.75% per annum on the initial investment amount, which was to be paid on a half-yearly basis. Currently, the SGB is offering an interest rate of 2.5% per annum. Taking interest into account, an individual is looking at an annual return of 13.63%.

How to Invest in SGB

The RBI announces the issue of SGB tranches every financial year. Currently, an investor can invest a minimum of 1 gram and a maximum of 4 kilograms per individual per financial year. To make an investment, an individual is required to mention the amount they want to invest in the application form. On the basis of the issue price announced by the RBI, the amount of gold is invested, and the balance amount is refunded to the investor’s bank account.

In summary, the first tranche of Sovereign Gold Bonds (SGB) issued by the RBI is set to mature in November 2023, and investors are likely to earn good returns on their investment based on the increase in the price of gold. The scheme offers a fixed interest rate and the potential for capital appreciation based on the price of gold.

FAQ

Q1: How much can an individual invest in Sovereign Gold Bonds (SGB) per financial year?

A2: An individual can invest a minimum of 2 grams and a maximum of 500 grams per person per financial year in Sovereign Gold Bonds (SGB).

Q2: How is the redemption price of SGB determined?

A2: The redemption price of the SGB is fixed in Indian Rupees on the basis of the previous week’s simple average closing price for gold of 999 purity, published by India Bullion and Jewellers Association (IBJA).

Q3: When is the maturity date for the first tranche of SGB?

A3: The maturity of the first tranche of SGB will happen on November 30, 2023, as per the scheme conditions.