The Reserve Bank of India (RBI) has announced the early redemption of another series of Sovereign Gold Bonds (SGB), offering investors a significant return on their investment. This time, it's the SGB 2019-20 Series X, originally issued on March 11, 2020, at ₹4,260 per gram, which is now eligible for premature redemption on September 11, 2025, at ₹10,905 per unit.

SGB Scheme and Redemption Details

The Sovereign Gold Bond (SGB) scheme was introduced by the Government of India in November 2015 as an alternative to purchasing physical gold. The aim was to reduce the country's reliance on gold imports, discourage hoarding, and channel household savings into financial assets. The bonds are issued by the RBI on behalf of the government and are denominated in grams of gold.

SGBs have a maturity period of 8 years, but they offer an option for premature redemption after the fifth year from the date of issue, which aligns with interest payment dates.

RBI Announces Redemption Price

The RBI has set the premature redemption price for the SGB 2019-20 Series X at ₹10,905 per unit. For investors who purchased these bonds at the issue price of ₹4,260 per gram, this translates to an approximate 156% return on their investment.

How the Redemption Price is Determined

The redemption price is calculated based on the simple average of the closing price of gold of 999 purity for the three business days preceding the redemption date, as published by the India Bullion and Jewellers Association (IBJA).

Returns and Taxation

In addition to the appreciation in the value of gold, SGBs also offer a fixed annual interest rate of 2.5%, which is credited semi-annually to the investor's bank account. While the interest earned from SGBs is taxable under Section 43 of the Income-tax Act, 1961, individuals are exempt from capital gains tax upon redemption. Moreover, long-term capital gains arising from the transfer of these bonds are eligible for indexation benefits.

Benefits of Investing in SGBs

• Safe and Secure: SGBs are government securities issued by the RBI, ensuring high credibility and safety.
• Alternative to Physical Gold: They offer a convenient way to invest in gold without the risks and costs associated with storing physical gold.
• Fixed Interest Rate: Investors earn a fixed interest rate of 2.5% per annum, paid semi-annually.
• Liquidity: SGBs can be prematurely redeemed after 5 years or traded on stock exchanges, providing liquidity to investors.
• Tax Benefits: Capital gains are exempt upon redemption for individuals, and long-term capital gains from transfers are eligible for indexation benefits.
• Can be used as collateral: The bonds are tradable, transferable and can be used as collateral for loans.

RBI's Role

The RBI plays a crucial role in managing the SGB scheme, including announcing the issue price, redemption price, and early redemption dates. The central bank also ensures that investors receive timely information and that the redemption process is smooth and efficient. The RBI has stated that investors should check redemption schedules and make sure their requests for early redemption are submitted before the deadlines.