The Reserve Bank of India (RBI) has announced the premature redemption of Sovereign Gold Bond (SGB) 2021-22 Series III, enabling investors in the June 2021 tranche to exit the scheme after the completion of the mandatory five-year holding period.
The bonds were issued on June 8, 2021. Under the terms of the scheme, investors are allowed to seek redemption after five years from the date of issue, even though the bonds mature after eight years.
Redemption from June 8
In a notification, the RBI said holders of SGB 2021-22 Series III will be eligible for premature redemption from June 8, 2026.
The option is available on interest payment dates, in line with the operational guidelines of the Sovereign Gold Bond scheme.
Formula for redemption price
The redemption amount will be linked to prevailing gold prices.
According to RBI rules, the value payable to investors is calculated using the simple average of the closing price of gold of 999 purity published by the India Bullion and Jewellers Association (IBJA) during the three working days preceding the redemption date.
The central bank announces the redemption price separately before the payout is processed.
Gold prices in focus
The redemption window comes at a time when domestic gold prices are trading substantially above levels seen in 2021, when this tranche was offered.
As a result, investors redeeming their holdings could realise gains linked to the rise in gold prices over the last five years.
The actual amount received, however, will depend on the gold price used for the final redemption calculation.
Hold or redeem?
Investors are not required to exit the scheme.
Those choosing to remain invested can continue holding the bonds until maturity and will keep receiving the fixed interest of 2.5 per cent per annum, payable every six months.
Sovereign Gold Bonds were introduced as an alternative to physical gold ownership and are denominated in grams of gold. Apart from redemption through the RBI, the securities are also traded on stock exchanges, offering investors another route to exit their holdings.
For bondholders in the June 2021 tranche, the latest RBI notification marks the first opportunity to redeem their investment directly with the government after completing five years in the scheme.
Can investors sell SGBs on stock exchanges instead?
Yes. Sovereign Gold Bonds are listed on stock exchanges and can be sold in the secondary market. However, the market price may differ from the RBI’s redemption price depending on demand and supply.
Why are Sovereign Gold Bonds popular?
Sovereign Gold Bonds were introduced by the Government of India as a way to invest in gold without buying physical gold such as coins or jewellery.
The bonds are denominated in grams of gold, meaning their value moves in line with gold prices. In addition, investors earn a fixed interest of 2.5 per cent per year on the amount invested, with interest paid every six months.
Because there is no need to store or safeguard physical gold, SGBs are considered a convenient option for long-term investors looking for exposure to the precious metal.
