318%+ gains for SGB 2019-20 Series II investors as RBI opens exit

RBI has fixed the premature redemption price at Rs 14,199 per unit for this Sovereign Gold Bond tranche

Investors can exit the Sovereign Gold Bond (SGB) 2019-20 Series II with substantial gains, as the Reserve Bank of India (RBI) has fixed the premature redemption price at Rs 14,199 per unit. The redemption window for eligible investors opened on Thursday, allowing those who have completed the mandatory five-year holding period to redeem their bonds before maturity.

 

The redemption price translates into a capital appreciation of around 318.5 per cent over the original issue price for investors who bought the bonds online, excluding the interest earned over the holding period.

 

RBI fixes redemption price at Rs 14,199

 

According to the RBI, the premature redemption value for SGB 2019-20 Series II, which was issued on July 16, 2019, has been set at Rs 14,199 per gram.

 

 

Under the Sovereign Gold Bond scheme, investors can opt for premature redemption after completing five years from the date of issue. However, such redemption is permitted only on interest payment dates.

 

The bond has a total maturity period of eight years, but investors have an early exit option after the fifth year.

 

How much have investors gained?

 

The bond was issued at:

 

• Rs 3,393 per gram for investors who applied online and paid digitally
• Rs 3,443 per gram for offline investors

 

Based on the redemption price of Rs 14,199, an online investor has earned a capital gain of Rs 10,806 per unit, representing a return of nearly 318.5 per cent.

 

For example:

 

An investment of Rs 1 lakh at the online issue price in 2019 would now be worth about Rs 4.18 lakh in redemption value.

 

This calculation does not include the semi-annual interest paid by the government during the holding period, meaning the overall return would be higher.

 

How does RBI calculate the redemption value?

 

The redemption price of Sovereign Gold Bonds is linked to the prevailing market price of gold.

 

As per RBI rules, the redemption value is calculated using the simple average of the closing price of 999 purity gold published by the India Bullion and Jewellers Association (IBJA) for the preceding three working days before the redemption date.

 

For this redemption, the price has been determined using the IBJA gold prices for July 13, 14 and 15, 2026.

 

This method ensures that the redemption amount broadly reflects the prevailing market value of gold.

 

What are Sovereign Gold Bonds?

 

Sovereign Gold Bonds are government securities denominated in grams of gold. They are issued by the RBI on behalf of the Indian government and are designed as an alternative to buying and storing physical gold.

 

Instead of holding gold in physical form, investors hold a government-backed security whose value moves in line with gold prices.

 

At maturity or redemption, investors receive the equivalent value in cash based on the prevailing gold price.

 

Interest is an additional benefit

 

A significant advantage of Sovereign Gold Bonds over physical gold is that investors also earn a fixed annual interest of 2.5 per cent on the original investment amount.

 

The interest is:

 

Paid every six months directly into the investor's bank account.

 

Calculated on the initial investment amount and not on the market value of gold.

 

Paid until maturity or premature redemption, with the final interest payment made along with the redemption proceeds.

 

This means investors benefit from both any rise in gold prices and a regular interest income during the holding period.

 

Tax treatment

 

Subscribers exiting early through the Reserve Bank of India's (RBI) 5-year premature exit window, capital gains are fully taxable. If held for less than 12 months, gains are taxed at your regular slab rate; if held for more than 12 months, they attract a 12.5 per cent Long-Term Capital Gains (LTCG) tax. The blanket tax-free exemption only applies if you hold bonds bought in the primary issuance all the way until the 8-year maturity

 

Should investors opt for premature redemption?

 

Investors eligible for premature redemption can either exit through the RBI's redemption facility or continue holding the bonds until their original eight-year maturity.

 

The decision largely depends on individual financial goals, liquidity needs and expectations regarding future gold prices.

 

Those who believe gold prices could rise further may choose to continue holding the bonds. On the other hand, investors looking to book profits or meet financial requirements may find the premature redemption option attractive after the strong appreciation seen over the past seven years.

 

No new tranches have been announced since February 2024 for the current financial year.