SGB 2017-18 Series V premature redemption: At 11.6% CAGR, investors get 73.16% absolute return! | The Financial Express

SGB 2017-18 Series V premature redemption: At 11.6% CAGR, investors get 73.16% absolute return!

The premature redemption of Sovereign Gold Bond is allowed after fifth year from the date of issue of such Gold Bond on the date on which interest is payable

SGB 2017-18 Series V premature redemption: At 11.6% CAGR, investors get 73.16% absolute return!
The RBI – in a press release on October 28, 2022 – had announced the first due date for premature redemption of Sovereign Gold Bond (SGB) 2017-18 Series V issue.

The Sovereign Gold Bond (SGB) investors – who opted for premature redemption after investing in SGB 2017-18 Series V – have made over 11 per cent annual return or compound annual growth rate (CAGR) for the 5-year period, thereby gaining an absolute return of over 70 per cent.

The Reserve Bank of India (RBI) – in a press release on October 28, 2022 – had announced the first due date for premature redemption of Sovereign Gold Bond (SGB) 2017-18 Series V issue. The settlement date of the series was on October 30, 2017.

As the premature redemption of SGB is allowed after fifth year from the date of issue of such Gold Bond on the date on which interest is payable, the due date of redemption has been taken as October 29, 2022 (October 30, 2022 being a Sunday).

Taking into consideration the simple average of closing gold price of 999 purity of previous three business days from the date of redemption as published by the India Bullion and Jewellers Association Ltd (IBJA), i.e., October 25, 27 and 28, 2022, the redemption price for premature redemption has been arrived at Rs 5,058 per gram of gold or per Gold Bond.

As the subscription period of the 2017-18 Series V was from October 23, 2017 to October 25, 2017 with settlement on October 30, 2017, based on simple average closing price (published by the IBJA) for gold of 999 purity of the previous three business days of the week preceding the subscription period, i.e. October 17, 18 and 20, 2017, the nominal value of the Gold Bond issue was worked out to Rs 2,971 per gram, which was the issue price of a single Bond for offline applicants.

With a discount of Rs 50 per gram on the nominal value offered to those investors applying online and paying through digital mode, the issue price of SGB 2017-18 Series V had become Rs 2,921 per gram of gold – that is Rs 2,921 per Gold Bond – for the online investors.

So, for the online investors who want to avail the premature redemption opportunity, the absolute gain in the 5-year holding period becomes Rs 2,137, giving an absolute return of about 73.16 per cent, which turns out to be a CAGR of over 11.6 per cent.

For the offline investors, however, the absolute return will be Rs 2,087 that gives an absolute return of over 70.24 per cent in the 5-year holding period and a CAGR of about 11.23 per cent.

Apart from the gain from the premature redemption, the investors also received 2.5 per cent interest per year on the nominal value of SGB paid semi annually during the investment period.

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First published on: 01-11-2022 at 14:59 IST