Ruchi SrivastavaThe Reserve Bank of India (RBI) has announced the premature redemption of two Sovereign Gold Bond (SGB) tranches—Series IV (2017-18) and Series II (2018-19). Eligible investors who have completed the minimum holding period can redeem their bonds on April 23, 2025. The early redemption will be allowed at a price of ₹9,669 per unit, applicable on the specified interest payout dates.
As per the scheme guidelines, investors can choose to redeem their bonds prematurely after completing a minimum holding period of five years, but only on the semi-annual interest payout dates. These bonds are government-backed securities linked to gold, offering a fixed annual interest rate of 2.5% (paid every six months) along with the potential for capital gains based on the market price of gold at maturity.
What is a Sovereign Gold Bond?
Sovereign Gold Bonds (SGBs) are securities issued by the RBI on behalf of the Government of India, providing a secure and tax-efficient way to invest in gold. These bonds track gold prices and offer a fixed 2.5% annual interest, paid semi-annually to investors. They have a tenure of 8 years, with an option to exit after 5 years on designated interest payment dates. Upon redemption, investors receive the prevailing market value of gold. Capital gains at maturity are exempt from tax for individual investors. SGBs provide gold investment benefits without storage issues, plus steady interest income and potential for long-term value appreciation.
Exit Options in Sovereign Gold Bonds for Investors
Investors can exit Sovereign Gold Bonds (SGBs) before the 8-year maturity by:
- Selling them in the secondary market, or
- Opting for early redemption as scheduled by the RBI.
Redemption Process for Sovereign Gold Bonds
- You can process the redemption for the Sovereign Gold Bonds (SGBs) through:
- Banks
- Post offices
- Stock exchanges
(The method of redemption depends on where you hold the bonds.)
- It is advisable to check with your bank or depository participant in advance to ensure a smooth redemption process.
- The Union Budget 2025 has stopped issuing new SGBs.
- However, investors can keep existing SGBs active and redeem them either at maturity or on eligible early exit dates.
Why the RBI is Opting for Premature Redemptions?
The prevailing market dynamics influence the RBI’s decision to discontinue select SGB series and allow early redemptions. With gold prices at elevated levels, redemption payouts have become more expensive for the government. By enabling premature exits, the RBI seeks to manage borrowing costs effectively while also providing investors with a chance to book profits.
What Should Investors Keep in Mind?
Gold prices have seen a significant surge over the past five years, particularly in the aftermath of the COVID-19 pandemic. This sharp rise presents a favorable opportunity for Sovereign Gold Bond (SGB) holders to consider exiting and locking in gains. However, you should guide the decision to redeem early or stay invested until maturity based on your individual financial objectives and overall portfolio strategy.
If the recent gold rally has caused your gold investments to exceed the ideal allocation—typically 10–15% of your total portfolio—it might be wise to redeem some or all of your SGBs to rebalance your asset mix and manage risk. Conversely, if your gold allocation remains within your target range, holding the bonds until maturity could align better with your long-term financial goals. In addition to potential capital gains at maturity, continuing to hold the bonds ensures you keep earning the 2.5% annual interest income.
Tax Rules for Sovereign Gold Bonds
- The tax authorities consider interest income from SGBs as “Income from Other Sources” and tax it based on the investor’s applicable income tax slab.
- Premature redemption through the RBI’s scheduled 5-year window is exempt from Long Term Capital Gains (LTCG) tax, offering a tax advantage to early redeemers via this route.
- Selling SGBs in the secondary market attracts capital gains tax, along with applicable surcharges and cess.
- Holding SGBs till maturity (8 years) leads to zero capital gains tax, as current tax laws do not consider the redemption a taxable transfer.
Final Thoughts
Although the RBI’s decision to initiate premature redemption of select SGBs is in line with current market trends and fiscal considerations, investors should carefully assess their personal financial situation before proceeding. It’s important to review your gold allocation within your overall portfolio, understand the relevant tax rules, and be familiar with the redemption process. This guidance aims to help you better understand the structure and impact of investing in Sovereign Gold Bonds. Stay informed by following RBI updates and consult a financial advisor for advice tailored to your specific needs.
FAQs
Q1. Who can buy the Sovereign Gold Bond Scheme?
Ans. The Sovereign Gold Bond Scheme is open for purchase only to resident individuals, Hindu Undivided Families (HUFs), trusts, universities, and charitable institutions.
Q2. How can one purchase Sovereign Gold Bonds?
Ans. Sovereign Gold Bonds can be bought through scheduled commercial banks, SHCIL, designated post offices, and recognised stock exchanges like NSE and BSE.
Q3. What will be the redemption price for Sovereign Gold Bonds in the premature redemption scheduled for April 23, 2025?
Ans. The redemption price for premature redemption on April 23, 2025, will be Rs 9,669 per unit of SGB, determined by the simple average of the closing gold prices for the business days April 17, April 21, and April 22, 2025.
Sources: msn.com
