Widely read:
Sovereign gold bonds (SGBs) provide a guaranteed annual interest of 2.5 per cent which is credited to the bank account of the bond-holder on a semi-annual basis. This is in addition to its market value which is linked to the price of physical gold.
Let's say someone buys an SGB at an issue price of Rs 5,000 on August 30, 2022, from the primary market. He would then receive an interest of Rs 125 on February 28 and then on August 30 next year, every year, till the time he continues to hold the bond. While SGBs have a tenure of eight years, they are listed on the stock exchange and can be bought or sold in the secondary market anytime, subject to liquidity.
What happens to the interest?
However, this often ignites a question among many investors as to what will happen to the interest if they buy or sell the SGB in the secondary market.
- The semi-annual interest would be credited to the bank account of the person who holds the bond on the date of interest pay-out (August 30 and February 28), irrespective of whether it has been bought in the primary or the secondary market.
- Further, the interest that has already been accrued is likely to be reflected in the price of the bond traded on the exchange.
For instance, if you decide to buy the same SGB just one month before the next interest pay-out, January in the above example, the price at which it will be available on the exchange to you will already be adjusted for the interest payable in February. However, one must note that this is not the only factor that decides the trading price of an SGB. Many other factors, like their demand, supply, and issue price, have a bearing.
Suggested watch: Should I buy an SGB from the stock exchange?
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