SGB 2020-21 Series VII: Investors to pocket 192% gains on premature redemption; RBI fixes October 19 date

The Reserve Bank of India ( RBI ) has fixed the premature redemption price of Sovereign Gold Bond (SGB) 2020-21 Series VII at ₹ 14,614 per gram. The due date for premature redemption of this tranche is fixed at October 19, 2026 (Monday), as October 20 is a holiday on account of Dussehra.

Sovereign Gold Bonds are government securities denominated in grams of gold and issued by the RBI on behalf of the Government of India. They allow investors to benefit from movements in gold prices without physically holding the metal.

In addition to potential price appreciation, these gold bonds offer fixed interest of 2.5% per annum on the initial investment amount.

According to the RBI's press release on Friday, “premature redemption of Gold Bond may be permitted after fifth year from the date of issue of such Gold Bond on the date on which interest is payable.”

Accordingly, the premature redemption date for the SGB 2020-21 Series VII tranche is October 19, 2026, since October 20 is a holiday.

The redemption price is determined using the simple average of the closing prices of 999-purity gold over the three preceding business days, as published by the India Bullion and Jewellers Association Ltd (IBJA).

“The redemption price for premature redemption due on October 19, 2026 (October 20, 2026, being a holiday), shall be ₹ 14,614/- (Rupees Fourteen Thousand Six Hundred and Fourteen Only) per unit of SGB based on the simple average of closing price of gold for the three business days, i.e., October 14, October 15, and October 16, 2026,” according to the release.

According to the Ministry of Finance's October 9, 2020, release, the original issue price of SGB 2020-21 Series VII was set at ₹ 5,051 per gram. Investors who applied and paid digitally received a ₹ 50-per-gram discount, bringing their purchase price to ₹ 5,001.

At the premature redemption price of ₹ 14,614 per gram, the investment would generate a gain of ₹ 9,563 for offline subscribers and ₹ 9,613 for online subscribers, translating into returns of 189.33% and 192.22%, respectively.

SGBs pay fixed interest of 2.5% per annum on the bond’s nominal value, payable half-yearly from the date of issue. The final interest payment is made along with the principal on maturity.

For a 10-gram investment, an offline subscriber who paid ₹ 50,510 would earn ₹ 1,262.75 annually ( ₹ 50,510 × 2.5%). An online subscriber who paid the discounted price of ₹ 50,010 would earn ₹ 1,250.25 annually ( ₹ 50,010 × 2.5%).

Assuming six full years of interest, the estimated interest income would be ₹ 7,576.50 and ₹ 7,501.50, respectively. These estimates assume six full years of interest payments and exclude taxes. Actual interest received depends on the payment schedule and holding period.

Disclaimer: This is purely for educational/informational purposes and should not be taken as any sort of investment advice. Always consult a SEBI-registered advisor before making any investment decisions.

Sheetal Goel is a Content Producer at Livemint, where she covers corporate developments, personal finance, business trends, markets, and SEBI-related updates.