SGBs: The Reserve Bank of India has not released any new series of sovereign gold bonds in recent months. Since February, no new SGBs have been issued. Only four tranches have been issued over the past two years. This absence of SGBs will have a significant impact on investors. Sovereign gold bonds are government securities expressed in grams of gold, serving as an alternative to holding physical gold assets. When purchasing SGBs, investors are essentially acquiring a bond that represents a specific amount of gold, which is locked-in for eight years. This allows the asset to appreciate over time without the need for physical storage.
The Sovereign Gold Bond (SGB) 2017-18 Series VI, which was issued on November 6, 2017, reached its premature withdrawal date on November 6, 2024. The recent premature redemption of this bond resulted in a favourable gain for investors, as the redemption price was set at Rs 7,850 per unit — more than double the original issue price of Rs 2,945 per gram, representing a 166.5% return over a seven-year period.
It is important to note that this return calculation does not include the annual interest rate of 2.50% that was paid biannually throughout the bond’s duration.
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SGB early redemption system
Investors looking for early exits have the opportunity to take advantage of the buyback facility, allowing for redemption at the end of the fifth, sixth, and seventh years. During the specified periods, unitholders can make redemption inquiries through various platforms such as the Reserve Bank of India’s (RBI) receiving offices, National Securities Depository Limited (NSDL), Central Depository Services Limited (CDSL), or the RBI Retail Direct platform.
The early redemption of Sovereign Gold Bonds (SGBs) is determined utilising the average gold price of the previous week, as recorded by the India Bullion and Jewelers Association Limited (IBJA). The Reserve Bank of India (RBI) will define distinct redemption windows at the conclusion of the 5th, 6th, and 7th year for investors who wish to redeem their SGBs before the scheduled maturity date.
Early redemption
A total of 30 Sovereign Gold Bonds (SGB) are set to be redeemed between October 2024 and March 2025. These SGBs qualify for early redemption after five, six, or seven years. Should you wish to redeem your SGBs early, it is necessary to notify the agent, bank, or post office through which the bonds were purchased. Please ensure that your redemption request is initiated at least 10 days prior to the interest payment date. The Reserve Bank of India (RBI) begins accepting premature redemption requests one month before the coupon payout date.
The redemption price will be determined by taking the simple average of the previous week’s closing price of gold, as published by the India Bullion and Jewellers Association (IBJA) from Monday to Friday. The redemption proceeds will be deposited directly into your designated bank account.
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Can you buy SGBs from secondary market?
The lack of communication from the government regarding the issuance of Sovereign Gold Bonds (SGBs) this financial year has led to a surge in demand for these bonds in the secondary market. This increased demand can be attributed to the growing scarcity of SGBs. These bonds are actively traded on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE), providing retail investors with easy access to buying and selling them through their demat accounts.
Investors in the secondary market have the option to choose from SGBs with different residual maturity periods, allowing them to tailor their investments to their specific financial goals and timeframes. This flexibility empowers investors to make well-informed decisions based on their individual preferences and objectives.
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Buying SGBs
When acquiring Sovereign Gold Bonds (SGBs) from exchanges, it is essential to consider two key factors. Firstly, pay attention to the liquidity of the SGBs available for purchase, as some may have limited liquidity. Selecting bonds with higher liquidity will help ensure that you can obtain your desired price. It is worth noting that the daily average traded volume of all SGBs on both the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) was Rs 13.4 crore.
Secondly, consider the traded price of the bond in relation to the reference rate. The gold price of 999 purity, sourced from ibjarates.com, serves as the reference rate for SGBs. It is common for most SGB series to trade at a premium to this reference rate. Investors often prefer SGB series that are available at or below the IBJA prices.
