Investors in the maiden tranche of sovereign gold bonds and held to its maturity are set to reap a big bonanza as prices of the precious metal have more than doubled in last eight years.

The first tranche of SGB was issued by the RBI in November 2015 at a price of ₹2,684 per gram and the redemption price for these bonds will be announced by RBI in the next few days.

Incidentally, last month RBI had declared a redemption price of ₹6,079 per unit for premature redemption of SGBs. This price appreciation is in addition to an annual interest paid at the rate of 2.75 per cent.

An investment of ₹1 lakh made in the first tranche of SGB would now fetch about ₹2.26 lakh at the last announced redemption price set by RBI. Investors would have earned an interest of about ₹22,000.

The maiden tranche of SGB will finally mature on November 30. Though the tenor of SGB are of eight years, investors can opt for early redemption of gold bonds after the fifth year from the date of issuance, coinciding with the interest payment date.

Determining the prices

RBI determines the SGB redemption price by taking the simple average of the closing gold prices with 999 purity over the three preceding business days from the redemption date, as reported by the India Bullion and Jewellers Association (IBJA).

Gold prices on Monday fell marginally to ₹6,088 a gram from ₹6,117 on Friday, as per IBJA. With the sharp rise in gold prices, RBI has toned down SGB issuances in recent years. The fresh issuances were down to four last fiscal from 10 issued in FY22. It had issued only two SGBs this fiscal at the prices of ₹5,923 and ₹5,926 per gram.

In FY23, four SGBs were priced in the range of ₹5,041 per gram in June 2022 to ₹5,611 in March 2023. In FY22, the 10 SGBs were priced between ₹4,777 (in May 2021) and ₹5,109 (in March 2022).

Gurmeet Singh Chawla, Director, Master Capital Services, said the significant two-fold increase in gold’s value over the previous octennial period is noteworthy for investors who have decided to hold on to their investment till the end.

A total of 62,169 applications had been accepted for a total subscription of 915.953 kg in the first tranche of SGB. While the bonds issued in 2015 bear an interest rate of 2.75 per cent per annum, it was bought down subsequently to 2.5 per cent per annum, he added.