Understanding the Redemption Price
A key point of interest for any SGB investor is the final redemption price. The headline figure of ₹15,384 appears to be an outlier, as recent premature redemptions have been in a different range. For instance, the RBI announced a premature redemption price of ₹15,334
for the SGB 2021-22 Series VI on September 7, 2026. This specific price is calculated based on a standard, transparent formula. The Reserve Bank of India (RBI) takes the simple average of the closing price of 999 purity gold for the three business days preceding the redemption date. These rates are published by the India Bullion and Jewellers Association (IBJA), ensuring the payout reflects gold's market value at the time of exit. This method applies to both premature withdrawals and final maturity redemptions after the full eight-year tenure.
Calculating Your Returns
The return on your SGB investment is the difference between the issue price and the redemption price. For example, the SGB 2021-22 Series VI was issued at ₹4,682 per gram for online applicants. With a premature redemption price of ₹15,334, this translates to an absolute return of nearly 228% over five years, not including the semi-annual interest payments. In addition to capital gains, SGBs also provide a fixed interest of 2.5% per annum on the original investment amount, which is paid out twice a year. This dual-return structure—capital appreciation from gold prices and fixed interest—is what makes SGBs an attractive instrument for many investors.
The Automatic Redemption Process
For investors holding bonds until the full eight-year maturity, the redemption process is straightforward and automatic. The RBI and associated banks will notify you about the upcoming maturity about a month in advance. On the maturity date, the redemption proceeds are automatically credited to the bank account linked to your investment. The same seamless process generally applies to premature redemptions. To opt for an early exit, you need to submit a request through your bank, post office, or depository participant at least a few days before the designated interest payment date. Once processed, the funds arrive in your account.
The Major Benefit: Tax Exemption
One of the most significant advantages of SGBs is the tax treatment of the returns. Capital gains realised upon redemption at the eight-year maturity are completely tax-exempt for individual investors. This exemption also applies if you hold the bonds for at least five years and exit through the premature redemption window offered by the RBI. This means the entire appreciation in your investment value is tax-free. However, it's important to note that the 2.5% annual interest you receive is taxable. This interest income must be declared under 'Income from Other Sources' and is taxed according to your applicable income tax slab.
Alternative Exit: Selling on the Market
What if you need to exit before the five-year lock-in period is over? If you hold your SGBs in a dematerialized (demat) form, you have the option to sell them on the secondary market, i.e., the stock exchange, just like a share. This provides an additional liquidity route. However, this exit method has different tax implications. If you sell your bonds on the exchange within 12 months of purchase, the profit is treated as a Short-Term Capital Gain (STCG) and taxed at your slab rate. If you sell after holding them for more than a year, the profit is a Long-Term Capital Gain (LTCG), which is taxed, though often at a preferential rate without indexation benefits. Crucially, the tax exemption on capital gains only applies to redemption through the RBI, not to sales on the secondary market.
