As the first batch of Sovereign Gold Bonds (SGB) 2015 reaches its maturity on Thursday, November 30, investors who choose to retain these bonds are positioned to harvest substantial gains. This comes in the wake of a surge in gold prices over the past eight years. The Reserve Bank of India (RBI) recently released a notification indicating the final redemption price of ₹6,132 per unit of SGB.
This valuation is determined based on the simple average closing price of gold for the week of November 20-24, 2023, as stipulated in the SGB scheme guidelines. When considering the
initial issuance price of ₹2,684 per gram in 2015, investors who retained these bonds until maturity are set to gain significantly.
How much one gains?
To understand the potential returns, let's consider an investor who acquired 35 grams of gold during the inaugural SGB offering, amounting to an investment of ₹93,940 at ₹2,684 per gram. With the redemption price now set at ₹6,132 per gram, the investor is poised to receive ₹2,14,620.
In absolute terms, this translates to a return of 128.5% without factoring in the interest earned on the SGB. Calculated in terms of Compounded Annual Growth Rate (CAGR), the returns stand at 10.88%. This illustrates the substantial gains awaiting investors as the issue reaches maturity on November 30.
Let's take another example. If an investor acquired 18.67 grams of gold, amounting to ₹50,000 at ₹2,684 per gram, the investor would receive ₹1,14,562. This means an absolute return and CAGR of approximately 128.5% and 10.92%, respectively.
With an initial investment of ₹83,333, the quantity of gold acquired would have increased to 31.17 grams, leading to a maturity value of ₹1,91,142, maintaining the same absolute return and CAGR of around 128.5% and 10.92%, respectively.
A higher initial investment of ₹2 lakh would have resulted in acquiring 74.68 grams of gold, culminating in a maturity value of ₹4,59,440. Similarly, this scenario would also exhibit an absolute return and CAGR of approximately 128.5% and 10.92%, respectively.
Here's a table showcasing such scenarios:
| Initial Investment (Rs) | Quantity of Gold (grams) | Redemption Price per gram (₹) | Maturity Value (₹) | Absolute Return (%) | CAGR (%) |
|---|
| 50,000 | 18.67 | 6,132 | 1,14,562 | ~128.5 | 10.92 |
| 83,333 | 31.17 | 6,132 | 1,91,142 | ~128.5 | 10.92 |
| 2,00,000 | 74.68 | 6,132 | 4,59,440 | ~128.5 | 10.92 |
The success of investors in this first tranche of SGB is primarily attributed to the remarkable surge in the price of gold. Notably, the initial purchase price of SGB at ₹2,684 per gram is less than half the prevailing market price, experts say.
Regarding the redemption process, the RBI's official website outlines the following steps:
Investors receive a one-month notice before the bond's maturity.
On the maturity date, proceeds are credited to the registered bank account.
Any changes in account details must be promptly updated with the bank/SHCIL/PO.More about SGBs
The unique
advantages of SGBs are apparent in their ability to allow investors to capitalise on gold price fluctuations without the complexities associated with physical gold transactions. Unlike physical gold, where losses occur due to buying and selling jewellery, SGBs eliminate such losses.
"Every time an individual alters the shape of gold, there is a loss in profit of 15–25% when buying and selling jewellery. Moreover, expenses are associated with storing, insuring, and safeguarding actual gold. SGBs can be stored in the Demat account or even as physical certificates. With SGBs, the headaches of maintaining gold and losing translation are mostly avoided," said Abhijit Roy, CEO at GoldenPi.
Investors who opt for online purchases enjoy a ₹50 per gram discount, offering greater flexibility. Holding SGBs until maturity in the eighth year enables a 100% capital gains exemption for those who buy them on the secondary market.
Additionally, Roy said that selling the
SGB before the eighth year entails Short-Term Capital Gains (STCG) if sold within three years and 20% Long-Term Capital Gains (LTCG) if sold between three to eight years. However, holding until maturity in the eighth year qualifies for a 100% capital gains exemption.
