Reserve Bank of India to prematurely redeem sovereign gold bonds

The Reserve Bank of India (RBI) has decided to prematurely redeem sovereign gold bonds (SGBs), which were issued in 2016 at a price of Rs 4,813 per unit of SGB.

Under central government rules, the premature redemption is permitted after the fifth year from the date of issue of such gold bonds on the date on which interest is payable, the RBI said in a statement.

The due date of premature redemption of the above tranche shall be February 8.

Further, the redemption price of SGBs is based on the simple average closing gold price of 999 purity of the week (Monday-Friday) preceding the date of redemption. The price is published by the India Bullion and Jewellers Association, the RBI added.

SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The bond is issued by the RBI on behalf of the Government of India.

The quantity of gold for which the investor pays is protected, since he receives the ongoing market price at the time of redemption/premature redemption. SGBs offer a superior alternative to holding gold in a physical form. The risks and costs of storage are eliminated, according to the RBI's frequently asked questions.

Investors are assured of the market value of gold at the time of maturity and periodical interest. SGBs are free from issues like making charges and purity in the case of gold as jewellery. The bonds are held in the books of the RBI or in a demat format, eliminating the risk of loss of scrip.