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The first batch of Sovereign Gold Bond investors have passed with flying colors

ICICIdirect 5 Mins 04 Dec 2023

Some of you would have invested in Sovereign Gold Bonds (SGB) and wondered how your investment would go! Some of you may be considering investing in them in the future. The best way to figure out the returns is by looking at the existing returns investors have made. 

The problem with SGB was that the lock-in period was 8 years, and hence the data was unavailable - up till now. The first Sovereign Gold Bonds were offered in November 2015, and have matured now. How much returns have they delivered to investors - the first batch of SGB? We will find answers in this blog. But let's first understand SGB.

What are Sovereign Gold Bonds?

For those new to this investment option, let us explain SGB by looking at its various features. Sovereign Gold Bonds have emerged as a unique and attractive option for individuals seeking to combine the stability of gold with the benefits of government-backed security. Introduced by the Government of India, SGBs offer a secure and efficient way for investors to participate in the gold market. Here is the overview of its features:

  • Government Backing: One of the primary advantages of Sovereign Gold Bonds is the backing of the Indian government. These bonds are issued by the Reserve Bank of India (RBI) on behalf of the government, which provides a sense of security and reliability.
  • Denominated in Grams of Gold: SGBs are unique as they are denominated in grams of gold rather than the traditional method of valuing gold in currency. It allows you to directly participate in the performance of gold without the need to physically own or store the precious metal.
  • Fixed Interest Income: Unlike physical gold, SGBs offer an additional advantage through fixed interest income. You receive a fixed interest rate (2.5%) on the initial investment amount, payable semi-annually. 
  • Capital Appreciation: Apart from the regular interest income, the value of SGBs is linked to the prevailing market price of gold. As the price of gold rises, the market value of the bonds also increases, providing investors with the potential for capital appreciation.
  • Liquidity and Tradability: SGBs are listed on stock exchanges, enhancing their liquidity and tradability. You have the flexibility to sell or transfer your bonds on the secondary market, providing an exit route before maturity if needed.
  • Tax Efficiency: Sovereign Gold Bonds also offer tax advantages. While the interest income is taxable, the capital gains arising from the redemption of SGBs are exempt from capital gains tax if held until maturity.

Returns made by the first batch

As per RBI notification, the price for the final redemption would be Rs 6,132 per unit of SGB, which is based on the simple average closing price of gold for the week of November 20-24, 2023. How much it was offered at? In 2015, the first tranche of SGB was issued for Rs 2,684 per gram. How much returns does it translate to?

The first issue will matured on November 30. Investors who have stayed invested since then would have made 10.88% CAGR returns. On top of it, the bonds gave interest at the rate of 2.75% per annum. The first scheme offered a higher interest rate than the existing 2.5%

Investors must note that SGB maturing in the future may not offer similar returns. The gold price is variable, and your returns depend on buying and future gold prices. However, the first tranche has set a good benchmark, and it would be interesting to see how future batches perform.

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