 "The July Budget made two changes in the treatment of gold that affect investment portfolios. The reduction in import duties to 6 per cent from 15 per cent in the latest Budget lowers input costs for jewellers and compresses margins for smugglers. The")
The Reserve Bank of India (RBI) has announced an early redemption for Sovereign Gold Bonds (SGBs) issued between May 2017 and March 2020. The redemption process will take place in two phases, starting from October 11, 2024, and extending to March 1, 2025.
Sovereign Gold Bonds have a maturity period of eight years, but investors have the option of premature redemption after 5, 6, and 7 years.
Redemption schedule and process
The RBI’s announcement details a structured schedule for the redemption of 30 different SGB tranches. The first tranche, issued on May 12, 2017, will have its redemption window open from October 11 to November 2, 2024. Investors can submit their redemption requests during this period, with the redemption amount, along with any accrued interest, credited to their accounts by November 12, 2024.
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The subsequent tranches will follow suit, with specific windows for each tranche.
For example, the 2017-18 Series II, issued on July 28, 2017, will have its redemption period from December 27, 2024, to January 18, 2025. The last tranche eligible for premature redemption, the 2019-20 Series X, issued on March 11, 2020, can be redeemed from February 7 to March 1, 2025.
“The recent decision by the government to facilitate early redemption of sovereign gold bonds reflects a keen understanding of market dynamics and a commitment to optimising fiscal management. Over the past few years, we have witnessed a notable surge in gold prices, with a compounded annual growth rate (CAGR) of 14-15 per cent. This rate significantly surpasses the historical average CAGR of 10-11 per cent, driven by evolving economic conditions,” Sumit Sharma, founder at Radian Finserv.
“By enabling early redemption, the government is demonstrating a prudent approach to managing future financial obligations and capitalising on the current favourable market conditions. This measure not only safeguards against potential future cost increases but also underscores the government's strategic foresight in financial planning,” Sharma said.
Details of tranches due for premature redemption during the period October 01, 2024 – March 31, 2025, along with the window available for submission of request for premature redemption by the investors are as under:
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“It may, however, be noted that the above-mentioned dates may undergo a change in case of unscheduled holiday/s. Investors are advised to take note of the period for submission of requests for redemption of SGB, in case they choose to redeem their holdings before maturity,” RBI said in a press release.
Tax implications
SGBs will be considered as long-term capital assets if held for more than 12 months. SGBs transferred on or after July 23, 2024 will be taxed at the rate of 12.5 per cent under section 112 without any indexation benefits.
SGB held for 12 months or less will continue to be considered as short-term capital asset and taxed at applicable slab rates.
Experts suggest SGBs are a safer and more tax-efficient investment compared to physical gold, with a 2.5 per cent annual interest. However, physical gold offers more liquidity and can be used as jewellery. SGBs have a five-year lock-in period, while physical gold can be sold anytime. The choice depends on investment horizon, liquidity needs, and tax.
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