What is this SGB and why can it be redeemed now?
This refers to the Sovereign Gold Bond (SGB) Scheme 2020-21, Series VI, which was issued on September 8, 2020. SGBs have a standard tenure of eight years, but they also come with an early exit option. Investors can choose to redeem them prematurely starting
from the end of the fifth year, on specific dates that align with the semi-annual interest payments. The September 8, 2026, date marks the six-year anniversary for this particular series, presenting an opportunity for investors to cash in on their holdings.
How exceptional are the returns?
The returns are remarkable. The issue price for this series in 2020 was ₹5,117 per gram. For those who applied online and paid digitally, a discount of ₹50 per gram was offered, bringing their cost down to just ₹5,067. With a redemption price of ₹15,384 per unit, an online investor is looking at a capital gain of ₹10,317 per gram. This translates to an absolute return of about 204% on the principal investment in just six years. To put it in perspective, an initial investment of ₹1 lakh in this SGB series is now valued at approximately ₹3.04 lakh.
Is that the only return investors receive?
No, the capital gain is only one part of the earnings. SGBs also pay a fixed interest of 2.5% per annum on the original investment amount. This interest is paid out to the investor's bank account every six months, providing a steady, additional income stream throughout the holding period. So, on top of the 204% capital appreciation from the rise in gold's value, investors have also been receiving this bi-annual interest payout for the past six years.
How was the redemption price calculated?
The process is transparent and market-linked, designed to prevent ambiguity. The RBI calculates the redemption price based on the simple average of the closing price for 999 purity gold for the last three business days preceding the redemption date. For the September 8 redemption, the prices from September 3, 4, and 7, 2026, were used. This price is published by the India Bullion and Jewellers Association (IBJA), which serves as the benchmark for gold prices in the country.
Are these massive gains tax-free?
This is the most critical question for investors considering redemption. The interest earned on SGBs has always been taxable according to the individual's income tax slab. However, the rules for capital gains have changed. While holding an SGB until its full eight-year maturity makes the capital gains completely tax-exempt for the original subscriber, premature redemption does not offer the same benefit. Following a rule change effective from April 2026, these gains from an early exit are subject to Long-Term Capital Gains (LTCG) tax. Investors will need to account for this tax liability when calculating their final net returns.
How do I redeem my bonds?
The process is straightforward. To opt for premature redemption, an investor needs to contact the same entity from which they originally purchased the bonds. This could be their bank, a designated post office, the Stock Holding Corporation of India (SHCIL), or an authorized agent. You must submit your request ahead of the interest payment date. The institution will handle the paperwork, and upon processing, the redemption amount will be credited directly to the bank account linked to your investment.
