Mark Your Calendar: SGB’s Maiden Tranche Matures on November 30

The Reserve Bank of India issued the maiden tranche of the Sovereign Gold Bond in November 2015, which is all set to mature after 8 years on November 30, 2023. This will be the first SGB issue to complete its 8 years. This article will discuss the facts and learnings from the first SGB tranche.

The first issue of the SGB was priced at Rs 2,684 per unit. The price of gold has increased more than double since then. This is undoubtedly a bonanza of earnings for the investors. Additionally, the interest rate offered for this tranche was 2.75% per annum, paid half-yearly on the initial investment amount. 

The biggest question we all have is, what will be the maturity amount? The redemption amount is Rs. 6132 per unit of the SGB, which is based on the simple average closing price of Gold from November 20 to November 24, 2023. As per the RBI guidelines, “The redemption price is fixed in Indian Rupees based on the previous week’s (Monday – Friday) simple average closing price for gold of 999 purity, published by India Bullion and Jewellers Association (IBJA).”

Recently, SGB 2017-18 Series 1 was open for premature redemption, and the price was Rs 6,116 per gram of gold. Following this trend, we can assume that the maturity price for the maiden tranche will lie somewhere around this price. Let us understand this with an example.

Mr Ram invested in 100 units of Sovereign Gold Bonds during the November 2015 issue. The total investment he would have made is Rs. 2,68,400. Since the maturity price will be Rs 6,132 per gram of gold, he will receive Rs. 6,13,200. Additionally, he has received the half-yearly interest of Rs. 3690.5 for 8 years, totalling Rs. 59,048. Let us calculate the returns now.

Since the redemption price is Rs. 6132 per unit, Mr Ram will earn an annual return of 10.84%. Additionally, he will also get an yearly interest of 2.75% on the face value of the SGB, which will be paid every 6 months. Please note, the interest is not compounded.

How to Invest?

The RBI issues SGB in various tranches every year. An investor can either invest in the SGB in the primary issue via the bank/demat broker or place a buy order for the SGBs in the secondary market. If you invest in the Sovereign Gold Bond in the primary issue by online payment, you get a discount of Rs. 50 per unit.

Individuals and HUFs can invest a minimum of 1 gram of gold to a maximum of 4 kg. However, trusts, universities, and charitable institutions can invest up to 20 kgs of gold per fiscal year. Please note an NRI is not allowed to invest in the SGBs.