Sovereign Gold Bond Redemption

The term ‘premature redemption’ refers to withdrawing an investment before it reaches its maturity date. Though Sovereign Gold Bonds have a tenure of 8 years, investors can redeem or encash it early after the 5th year from the date of bond issue, on the date on which the next interest is payable.

As an alternative to premature redemption, investors holding SGBs in the demat form can also sell them to other investors through the secondary market.

Investors can prematurely redeem their Sovereign Gold Bonds after the fifth year from the date of bond issue and on the date on which the next interest is payable. They can submit the request for premature redemption through their issuing bank, post office, Stock Holding Corporation of India (SHCIL) offices, RBI Retail Direct or agents.

To get started, investors would need to submit the redemption request to the Receiving Office or to their Depository Participant (in case of dematerialized SGB) at least 10 days before the next date of interest payment.

The Receiving Office/Depository Participant/Depository can ask investors to furnish additional documents, KYC, declaration, etc. Once the submission part is completed, the redemption request is scrutinised to verify the correctness of the documents.

On successful processing of the request, the redemption proceeds are transferred to the linked bank account of the investors. Redeeming these bonds early through the broking agents may also attract some charges.

Investors holding SGB in the demat form can sell them in the secondary market, depending on the availability of buyers.

Know About: Sovereign Gold Bond Returns

Capital gains tax is applicable on premature redemption of SGBs, depending on the period of holding. If the investor redeems these bonds within a year, then the gains will be treated as short-term capital gains and taxed as per the investor’s tax slab rate. Bonds redeemed after a period of more than a year are considered as long-term capital gains and are taxed @ 12.5%.

The redemption price of Sovereign Gold Bonds issued since April 2018 shall be based on the simple average of closing gold price of 999 purity of the previous 3 working days as published by the India Bullion and Jewellers Association Limited. Before this period, the redemption price of SGB was based on the simple average of closing gold price of 999 purity of previous week (Monday to Friday) of the redemption date.

The premature redemption proceeds of Sovereign Gold Bonds will be credited to the customer’s bank account provided at the time of applying for the bond.

RBI allows Sovereign Gold Bond investors to partially redeem their SGB holdings in the multiples of 1 gram before their maturity. This allows investors the flexibility of partially redeeming their investments as per their requirements.

SGB offers convenience, safety and liquidity without any purity issues or storage risks, making them an attractive alternative to physical gold. Staying invested in Sovereign Gold Bonds for its full 8-year tenure comes with its own set of advantages. The tax-free capital gains at maturity coupled with the potential appreciation in gold prices, create a tax-efficient exit for investors optimistic about the gold’s performance in future. Another advantage of Sovereign Gold Bond is that it offers the 2.5% p.a. interest is payable semi-annually, providing a steady source of income to investors. Such provision for fixed income is not available to any other investment instruments belonging to gold as an asset class. Just like other government bonds, the interest income earned from Sovereign Gold Bonds are also backed by sovereign guarantee.

Moreover, gold as an asset class acts as a hedge against market volatility and geopolitical risks. Thus, adding Sovereign Gold Bonds to an investment portfolio will also help in balancing the risks pertaining to equities in an investment portfolio.