Multifold gains for SGB 2019-20 Series VII investors as RBI allows exit

With the five-year lock-in period ending, investors in SGB 2019-20 Series VII can now opt for premature redemption

Investors can exit the Sovereign Gold Bond (SGB) 2019-20 Series VII, as the Reserve Bank of India (RBI) has announced the five-year lock-in period is over.

 

The RBI has fixed the redemption price at Rs 12,827 per unit, a valuation based on the simple average of closing gold prices of 999 purity as published by the India Bullion and Jewellers Association on December 5, 8 and 9.

 

Investors who had subscribed at the issue price of Rs 3,795 per gram in December 2019 will see a capital gain of Rs 9,032 per gram, representing a return of approximately 238 per cent over six years. Digital purchase at a slight discount of Rs 3,745 per gram will earn even higher gains of around 242 per cent. These figures exclude the semi-annual interest of 2.5 per cent per annum paid during the holding period, further boosting overall returns.

 

 

How premature redemption works

 

SGBs have an eight-year tenure but investors can exit after five years. Premature redemption is permitted only on the semi-annual interest payment dates. Investors must submit their redemption request through the bank, post office, or agent from which they purchased the bonds, typically a few days in advance. The redemption proceeds are credited directly to the investor’s bank account.

 

Understanding the Sovereign Gold Bond scheme

 

Launched by the government in 2015, SGBs offer dual benefits: earning a fixed interest of 2.5 per cent per annum on the purchase price and capital appreciation linked to gold prices. The scheme aims to reduce India’s reliance on imported gold, curb hoarding, and channel household savings into financial assets.

 

SGBs can also be traded on stock exchanges, transferred to other investors, or used as collateral for loans, providing liquidity alongside long-term wealth creation.

 

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

 

Tax treatment

Under the Income-tax Act, 1961, interest earned on SGBs is taxable. However, capital gains on redemption of the bonds are exempt from tax. If the bonds are sold on the stock exchange, the gains qualify for indexation benefits, making them a tax-efficient gold investment.

 

For investors seeking both security and returns linked to gold prices, the premature redemption window for Series VII now offers a timely opportunity to realise significant gains while keeping part of their savings invested in gold.