An Early Exit Opportunity
The Sovereign Gold Bond scheme comes with a standard tenure of eight years. However, it also offers investors a chance to exit earlier. For the 2020-21 Series VI, which was issued on September 8, 2020, the first opportunity for premature redemption has
now arrived. As per the scheme's rules, investors can redeem their bonds after the fifth year on specific interest payment dates. This provides valuable liquidity for those who may need funds or wish to lock in their profits before the full maturity in 2028.
How Was the ₹15,384 Price Calculated?
The redemption price is not arbitrary; it is directly linked to the market price of gold. The Reserve Bank of India (RBI) determines this value using a transparent formula: the simple average of the closing price of 999 purity gold for the three business days preceding the redemption date. For the September 8, 2026, redemption, the RBI used the gold prices published by the India Bullion and Jewellers Association (IBJA) for September 3, 4, and 7, 2026, to arrive at the final figure of ₹15,384 per unit. This process ensures that investors receive a fair price that reflects the gold market's performance at the time of redemption.
Breaking Down the Phenomenal Returns
For investors who bought this SGB series, the returns have been exceptional. The issue price in September 2020 was ₹5,117 per gram, with a discount for online applicants bringing the cost down to ₹5,067. At a redemption price of ₹15,384, an online investor sees a capital gain of ₹10,317 per gram. This translates to an absolute return of approximately 204% in six years. A ₹1 lakh investment made in 2020 is now worth over ₹3 lakh from capital gains alone. This doesn't even include the additional benefit of the 2.5% annual interest paid on the initial investment amount, which has provided a steady income stream to investors every six months.
The Critical Question of Taxation
While the returns are impressive, investors must be aware of the tax implications, especially following recent changes. One of the most attractive features of SGBs is that capital gains are completely tax-exempt if the bond is held for the full eight-year maturity period by an individual investor. However, this benefit does not apply to premature redemptions. Following changes effective from April 2026, gains from an early exit are subject to tax. Since the holding period is more than 12 months, this profit will be treated as Long-Term Capital Gains (LTCG). This is a significant factor to consider, as it will reduce the final in-hand return.
To Redeem Now or Hold Until Maturity?
The decision to redeem now or hold on is a personal one based on individual financial goals. Redeeming now allows you to lock in substantial, albeit taxable, profits. It offers immediate liquidity for other investments or expenses. On the other hand, holding on for the remaining two years until maturity in September 2028 has two potential advantages. First, any further appreciation in gold prices will add to your gains. Second, and more importantly, the capital gains at full maturity are entirely tax-free for individual investors. This means weighing the certainty of a large taxable profit today against the possibility of an even larger, tax-free profit in two years.
