These SGB investors will earn 101% on maturity

The Reserve Bank of India has announced the final redemption date for the Sovereign Gold Bond (SGB) Scheme SGB 2016-I. The date has been set as February 8, 2024.

Based on the simple average closing gold price for the week of January 29-February 02, 2024, the price for the final redemption, which is scheduled for February 8, will be Rs 6,271 per unit of SGB.

Redemption price of first ever Sovereign Gold Bond (SGB) tranche announced; investors to earn 11%


Sovereign Gold Bonds 2016-I: What was the issue price, interest rate

Sovereign Gold Bonds 2016-I is a 8 year bond which is maturing this week. The issue price of SGB 2016-I, when launched in July 2016, was Rs 3,119 per gram.



What is the final redemption amount?

The final redemption amount is Rs 6,271 for each SGB unit.

As per the SGB scheme guidelines, “The redemption price shall be fixed in Indian Rupees on the basis of the previous week’s (Monday – Friday) simple average closing price for gold of 999 purity, published by India Bullion and Jewellers Association (IBJA).”


How much is the increase and how much an investor will earn

Assume that an investor obtained 35 grams of gold during the initial SGB offering. The investment amount is equal to Rs 109,165 because it was made at a cost of Rs 3119. With a maturity price of Rs 6271 per gram, the investor will receive Rs 217,595.

Without considering the interest on SGB, the returns have a compound annual growth rate (CAGR) of 9.12%. One will receive a return of 101.05% if interest earned on the SGB is not taken into consideration.

Interest rate on SGB

Sovereign Gold Bonds include a set annual interest rate of 2.75 percent based on the initial investment, starting from the date of issue. Currently, interest rate is lowered to 2.5 percent.

What happens after SGB matures in 8 years?

The interest and maturity will be credited to the bank account when the SGBs mature after eight years.

When will SGB interest be credited

The investor’s bank account will be credited with interest on a semi-annual basis, and the final interest payment will be due together with the principal at maturity.

SGB details

Every financial year, the RBI announces the issuance of SGB tranches. As of now, an investor is limited to 4 kg per individual each financial year, with a minimum investment of 1 gram. A person must indicate in the application form how much they wish to invest in order to make an investment. The quantity of gold invested is determined by the RBI’s indicated issuance price. The balance amount is refunded to the investor’s bank account.

Taxation

The interest on Gold Bonds is taxable under the Income-tax Act, 1961 (43 of 1961). Individuals are excluded from paying capital gains tax when redeeming SGBs. Indexation benefits will apply to long-term capital gains emerging from bond transfers.

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William Murphy

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