Sovereign Gold Bond Prices Doubled in 6 Years (SGB Returns Calculator)

Background

When it comes to the diversification of assets, Gold is one asset which is a part of almost everyone’s portfolio. Over the years, Gold has even been more in news as it has been scaling new heights over last 3 years and currently also hovering around ATH price.

Even a look at past 20/30 years of data makes it amply clear that over the long run, Gold has not lost its sheen and comes out as an excellent investment asset class especially during the times of adversity.

The name is Bond….Sovereign Gold Bond (SGB)

During past few years and especially during Covid era , Sovereign Gold Bonds were all over the place. With limited investment opportunity in physical gold due to the lockdowns and with gold prices rising like never before, Sovereign Gold Bonds were grabbed by many like hot selling cakes. There were bonds issued during each month of 2020 but this was one of the few years when these bonds caught attention of many.

Features of SGB

Sovereign Gold Bonds are issued with a tenor of 8 years with exit option after 5th year. The investors are also promised to be compensated at a fixed rate of 2.50 percent per annum payable semi-annually on the nominal value – also called as the Coupon rate.
Purchasing the bonds online gave a further discount of Rs.50 to the buyer.
SGB can also be used to kept as a collateral against a Loan.

How to Calculate Returns of Sovereign Gold Bond?

Watch this video and use the Excel sheet to calculate the returns of Sovereign Gold Bond.

How to buy Sovereign Gold Bond Online?

Tax Treatment of Gold Bond Returns

The interest on Sovereign Gold Bonds shall be taxable as per the provision of Income Tax Act, 1961 (43 of 1961).
The capital gains tax arising on redemption of SGB to an individual has been exempted.
The indexation benefits will be provided to long term capital gains arising to any person on transfer of bond.
Bonds will be tradable on stock exchanges.

Calculation of Returns

There are 2 Types of returns that I have tried to calculate –
1. Overall returns on Investment
2. Calculating the Selling Price for a desired return

Overall returns on Investment for SGB

Let us assume that the buyer of Sovereign Gold Bond, while purchasing the bond received the bonds at the price of Rs. 2901 per gram. (Including any discounts for online based applications).

Let’s assume one invests by buying 10 units equivalent to 10 grams of gold. This will be our PV – Present Value

On this bond, now there will be semi annual payments calculated at the rate of 2.5% per annum (I/Yr), which translates to roughly Rs.363. These payments will be made for a period of 8 years so a total of 16 payments (nPer or N) be made.

Now, Let’s assume that at the time of maturity – the price of Gold is Rs. 7000 per gram (FV) which is announced by RBI as the Bond’s maturity value.

Now, to calculate the returns on our investment, we will use the Rate formula in excel and add the values of various fields. For your ease, this has been done in the excel sheet, link of which is provided in the next section.

Using the formula and values, for the above case, the overall returns get translated to around 13.04%.

NOTE – Tax on interest paid semi-annually has not been taken into account. Thus, the overall returns will actually be lower than this.

Calculating the Selling Price for a desired return on SGB

Now, lets take the scenario wherein we want to find the selling price of our investment in Sovereign Gold Bond basis an assumed fixed rate of return.

Taking the second example highlighted in screenshot above, let’s assume that we purchased bonds which had a Buying price of Rs. 2901 (PV).

Now, as in the previous case, bonds had a coupon value of 2.5% which means it was giving semi-annually payments of Rs.36(PMT). The duration of bonds remain as 8 years or 16 semi-annual periods (N).

Now, with above information, if an investor desires a returns of 12% (I/Yr), the Selling price of the Bonds should be Rs. 6439 (FV) per unit (or per gram)

The same can be easily derived again by Excel by using the Future Value formulae in excel. Again, for your ease, the same has also been done in the excel (link in next section.)

Real Returns over Past 6 Years

In the below section, you can look at the returns generated by Sovereign Gold Bonds over the last 6 years. Bear in mind that the actual returns will only be known when these bonds reach their maturity period at 8 years from date of their issuance.

If you are planning to Invest in Sovereign Gold Bond 2023-24 Series 2 Scheme, refer to this post.

Download

Download the stand alone calculator

Using the link above, you can download the excel which can be used to calculate the returns of the Gold Bond (or any other bonds) as well as to calculate the expected sale price if a certain return is desired.

Why are you charging for Excel?

There is effort and cost spent in creating this Excel, hosting it on a website and regularly updating it. The Excel can be created by anyone having very little understanding of using Excel and I would ideally encourage you to make your own instead. There may also be many other alternatives available on internet and you may choose to use them as well. The small cost being charged will be used to keep this website running and to bring more such useful content in the future for you.

If you face any issues, email me at [email protected]