Sovereign Gold Bond Series 2019-20 Delivers 378% Return on Premature Redemption

The Reserve Bank of India (RBI) has announced the premature redemption price for Sovereign SGB 2019-20 Series-I-Issue date June 11, 2019. According to a statement from the Central Bank, investors will have the option to redeem this SGB tranche prematurely from June 11, 2026.The premature redemption of the SGB series will be permitted after the fifth year from the date of the issue of such gold bonds on the date on which interest is payable, as per the RBI statement.How is SGB redemption price calculated?The redemption value of an SGB is calculated based on the simple average closing price of the gold of 999 purity published by the India Bullion and Jewellers Association (IBJA) for the preceding three working days, as per an RBI rule. What is the premature redemption price for SGB 2019-20 Series-I?The premature redemption price of the SGB 2019-20 Series-I due on June 11, 2026, has been fixed at Rs 15,038 per unit of SGB, based on the simple average of the closing price of gold for the last three business days, i.e., June 8, June 9 and June 10, 2026.The SGB 2019-20 Series-I was issued at Rs 3,146 per gram for online bonds. It will yield an absolute simple return of 378% on the date of premature redemption.For investors who bought SGBs of the same series offline, the issue price was Rs 3,196 per gram of gold. A Rs 50 discount was available on the online purchase of the SGB. Absolute return (gain) = Final value - initial investment= Rs 15,038 – Rs 3,146= Rs 11,892Percentage return = (Absolute gain ÷ Initial investment) × 100 = (11,892 ÷ 3,146) × 100 ˜ 378% (377.99%)It means if someone had invested Rs 1 lakh at the time the gold bond was issued, an absolute return of 377.99% would give them capital gains of about Rs 4,77,990 (Rs 1,00,000 principal + Rs 3,77,990 capital gains), excluding any interest earned on the Sovereign Gold Bond.What is a Sovereign Gold Bonds (SGBs) series? Who is the issuer?SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The bond is issued by the Reserve Bank of India (RBI) on behalf of the Government of India.What is the rate of interest on SGBs and how is the interest paid?The bonds bear interest at the rate of 2.50% (fixed rate) per annum on the amount of the initial investment. Interest is credited semi-annually to the bank account of the investor and the last interest is payable on maturity along with the principal.