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Kolkata: Sovereign Gold Bonds (SGB) Series-IV is coming up for premature redemption today, July 14, 2025. Premature redemption in SGBs is permitted after five years, though the period of maturity is eight years for this instrument. "The redemption price of SGB shall be based on the simple average of the closing gold price of 999 purity of the previous three business days from the date of redemption, as published by the India Bullion and Jewellers Association Ltd (IBJA)," the central bank has said in a statement which helps on to understand the gains one can make on this investment.
IBJA data show that the price of gold of this purity --its the highest purity -- for three days July 9-11, 2025 works out to an average of Rs 9,688 per gm. It might be recalled that this series of SGB was sold in July 2020. The price at which the SGBs (SGB 2020-21 Series-IV) were sold was Rs 4,852 per gm. It is easy to calculate the rate of return now, which is 99.67%.
But the returns are actually higher than this since the SGBs pay an interest of 2.5% per annum on the amount initially invested, which is Rs 48,52/gm. This interest has been paid twice a year. It was credited to the bank account of the bold holder.
SGBs are sold by the RBI on behalf of the government. It is denominated in gold and was introduced to substitute for the metal, which was in demand from many investors. They were introduced in November 2015 and SGBs worth Rs 72,274 crore has been issued so far and it represents about 146.96 tonnes of gold. Apart from the redemption price, the investors were also paid interest at rate of 2.5% a year on the initial amount.
If an investor wants to redeem the bonds prematurely, he/she can apply to the bank or post office or Stock Holding Corporation of India from where the bonds were purchased. One has to apply at least one day in advance before the coupon payment day. The money will be credited directly to the bank account of the bond holder.
One of the primary objectives behind launching SGB was to reduce the import of gold. The yellow metal imposes a severe drain on the country's forex reserves. In fact, it is the second biggest item on India's import bill after crude oil. The reason: India is the world's second biggest consumer of gold and is mainly dependent on imports to whet the appetite.
But the government had to discontinue toe SGB despite investor interest due to the rising burden of debt on the public exchequer. The cost of gold has been rising rapidly in the past few years, putting strain on the government since it has to bear the cost of redemption.
