Investors in Sovereign Gold Bonds (SGBs) 2017-18 Series-XII are celebrating substantial returns as the Reserve Bank of India (RBI) announced the final redemption price. The bonds, which matured on December 18, 2025, have yielded an impressive 366% return for investors.

The RBI has set the final redemption price at ₹13,245 per unit. This figure is based on the average closing price of gold with 999 purity over the preceding three business days, as published by the India Bullion and Jewellers Association Ltd (IBJA).

The SGB 2017-18 Series-XII was initially issued on December 18, 2017, with a subscription period from December 11-13, 2017. The issue price was ₹2,890 per gram, but a ₹50 discount was offered to those who applied online, bringing the effective price down to ₹2,840 per gram.

The substantial increase in the redemption price showcases the significant appreciation of gold prices over the past eight years. Investors who held these bonds until maturity have gained ₹10,405 per unit, excluding the additional interest earned. This translates to an absolute simple return of approximately 366%. For example, an investment of ₹2 lakh in these bonds would have grown to ₹9.32 lakh on the final redemption date.

Sovereign Gold Bonds are government securities denominated in grams of gold and issued by the RBI on behalf of the Government of India. These bonds serve as an alternative to holding physical gold, eliminating the risks and costs associated with storage. SGBs have a maturity period of eight years, with an option for premature redemption starting from the fifth year on interest payment dates.

One of the key attractions of SGBs is the fixed interest rate, which is 2.50% per annum, paid semi-annually. This interest is taxable under "Income from Other Sources". However, the capital gains tax arising from the redemption of SGBs at maturity is exempt for individuals, making it a tax-efficient investment. If the bonds are sold before maturity, capital gains tax will be applicable based on the holding period.

The SGB scheme was launched in November 2015 as part of the Gold Monetisation Scheme, with the goal of providing an alternative to physical gold investment. Eligible investors include individuals, Hindu Undivided Families (HUFs), trusts, universities, and charitable institutions. The bonds are issued in denominations of 1 gram and multiples thereof, with a maximum purchase limit of 4 kg per financial year for eligible investors.

To invest in SGBs, individuals need to have a PAN number. The bonds can be held in dematerialized form or with the RBI. They are also tradable on stock exchanges if held in demat form and can be transferred to other eligible investors. SGBs can be used as collateral for loans, with the Loan to Value ratio as mandated by the RBI for ordinary gold loans.

The redemption process is straightforward. The redemption price is based on the average closing price of gold with 999 purity, published by IBJA, for the three business days preceding the redemption date. The redemption amount, along with the final interest, is credited directly to the investor's bank account.

While the SGB scheme was discontinued in 2024, existing bonds were not affected. The government decided to discontinue the scheme as it proved to be a high-cost borrowing method compared to traditional bonds and did not significantly reduce gold imports.

Despite the discontinuation of new issuances, the Sovereign Gold Bond scheme has proven to be a beneficial investment for those who subscribed to earlier tranches, providing both security and attractive returns linked to gold prices.