The Reserve Bank of India (RBI) has announced a premature redemption window for several series of Sovereign Gold Bonds (SGBs).
SGBs were initially launched in November 2015 by the government of India with the objective of borrowing and was part of the gold monetisation scheme.
The aim was to reduce the physical demand for gold in India, encourage financialization of savings, and channel idle gold for productive use in the economy.
Investors were assured of the market value of gold at the time of maturity and periodic interest (at 2.5% fixed rate) payable semi-annually to their bank account with the last interest payable on maturity along with the principal.
Premature redemption of SGBs is permitted after the fifth year from the date of issue. The full term or tenor of these bonds is 8 years.
Now with the surge in price per gram of gold (999 purity), the government has decided to discontinue SGBs and prematurely redeem them, considering the high borrowing cost.
The last tranche of SGB was offered in February 2024 at an issue price of Rs 6,263 per gram and today (as of April 16, 2025) the price per gram of gold (for 999 purity) is Rs 9,457 – that’s an absolute return of +51% in little over a year.
Recently the SGB 2017-18 Series III (issued on October 16, 2017, at Rs 2,964 per unit) was redeemed on April 16, 2025, at a price of Rs 9,221 per unit of SGB.
This was based on the simple average of closing price of 999 purity gold for the three business days i.e., April 09, April 11, and April 15, 2025, published by the India Bullion and Jewellers Association Ltd.
Before that, on April 15, 2025, the SGB 2019-20 Series V (issued on October 15, 2019, at Rs 3,788 per unit) was prematurely redeemed at a price of Rs 9,069 per unit of SGB.
This was based on the simple average of the closing price of 999 purity gold for the three business days i.e., April 08, April 09, and April 11, 2025.
Given this, investors in SGB 2017-18 Series III and SGB 2019-20 Series V have made handsome capital gains. This is largely due to gold exhibiting its sheen amid looming geopolitical and macroeconomic uncertainties.
If we consider the bi-annual interest, the total returns earned are even more attractive.
Going forward, as per the RBI’s premature redemption schedule for SGBs, two more SGBs will be redeemed in April 2025: SGB 2027-18 Series IV and Series V.
In the ensuing months as well, many more SGBs are scheduled for premature redemptions. Given that gold has scaled up, investors would earn appealing returns.
Note that if you, the investor, choose to hold SGBs until their full tenure of 8 years the redemption amount will be as per the price of gold (999 purity) at that time, and you shall continue earning interest until maturity.
What Should Investors Do?
In the last five years, particularly after the COVID-19 pandemic, gold has seen a remarkable run-up. The present elevated price of gold allows you to benefit from the premature redemption of SGBs.
If you have been already investing in gold and your allocation has exceeded 10-15% of your portfolio amid the rally it would be prudent to redeem/book profits, to bring back the portfolio to the desired allocation.
The SGB units can be tendered for premature redemption, reach out to your bank, post office, or broker/agent through whom you originally purchased the SGBs.
That said, if your exposure to gold is well within the previously mentioned allocation, then maybe you could consider holding on to your SGBs (a smart avenue to invest in gold) until the full maturity of 8 years.
Unlike financial assets, gold is a real asset – meaning gold does not carry credit or counterparty risk.
You see, even a stronger US Dollar hasn’t dampened the sentiments toward gold, according to the WGC. The Trump 2.0 administration favouring a weak dollar and the uncertain effects of tariffs could serve as a tailwind for gold.
Against the backdrop of trade wars, heightened geopolitical risk, and its repercussions on global economic growth, inflation, and financial markets, it makes sense to have some tactical allocation to gold.
In the past as well, i.e. in 2019, 2020, 2022, 2024 when we witnessed a pandemic, wars, and geopolitical tensions in many parts of the world, gold has done well.
Even central banks of the world, recognising the looming risks (macroeconomic and geopolitical) are buying gold strategically as a part of their reserve management.
The World Gold Council (WGC) has also expressed that given gold’s strategic significance and the economic uncertainties ahead, investors should consider the portfolio benefits gold can offer in 2025 and beyond.
So, despite the discontinuation of Sovereign Gold Bonds (SGBs), gold continues to be a good investment option.
The Tax Implications of Sovereign Gold Bonds
Keep in mind that, the interest on the bonds will be taxable as per the provisions of the Income-tax Act, 1961 (43 of 1961). The interest is taxable under the head ‘Income from Other Sources’ as per your applicable income tax slab, i.e., at the marginal rate of taxation.
As regards, the proceeds from the premature redemption of SGBs through the RBI window (available after five years of holding) are exempt from Long Term Capital Gains Tax, as per the current tax rule.
However, if you miss this window and sell the SGBs in the secondary market, they will be subject to capital gains tax (plus the surcharge and health and education cess as applicable).
Hence, if you are considering redeeming SGBs, either use the premature redemption window or hold until the maturity period of 8 years to save tax.
If you hold the SGBs until maturity, the resulting capital gains will be exempt from tax, as they are not considered a transfer for capital gains.
Note, that it is your responsibility as a SGB holder to comply with the tax laws.
Make sure to be thoughtful in your approach.
Happy Investing.
Disclaimer
This article first appeared on PersonalFN here.
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