Personal Finance

Sovereign Gold Bond premature redemption: This SGB series can be withdrawn at 111.5% higher than issue price

The premature redemption price of Sovereign Gold Bond (SGB) 2017-18 Series X will be Rs 6,265 per unit, according to a press release by the Reserve Bank of India (RBI) dated December 1, 2023.

“The redemption price of SGB shall be based on the simple average of closing gold price of 999 purity of the previous three business days from the date of redemption as published by the India Bullion and Jewellers Association Ltd (IBJA). Accordingly, the redemption price for premature redemption due on December 04, 2023, shall be Rs 6,265/- per unit of SGB based on the simple average of closing gold price for three business days i.e., November 29, 30, and December 01, 2023,” as per the press release.

The due date for tendering the eligible SGBs to the RBI for premature redemption is December 04, 2023, the central bank said.

The tenure of the Sovereign Gold Bond Scheme is eight years; however, premature withdrawal can be done after the fifth year from the date of issue of interest payment dates.

This particular SGB 2017-18 Series X was issued at Rs 2,961 per gram on November 24, 2017. So, the absolute return comes to Rs 6,265-2,961= Rs 3,304 (without factoring in the interest). In percentage terms, it comes to Rs {(3,304/2961) *100} %= 111.5839%.

So, if the investors opt for premature withdrawal, then the absolute return will be 111.5%.

How to apply for premature redemption of SGB 2017-18 Series X

“In case of premature redemption, investors can approach the concerned bank/SHCIL offices/Post Office/agent thirty days before the coupon payment date. Request for premature redemption can only be entertained if the investor approaches the concerned bank/post office at least one day before the coupon payment date. The proceeds will be credited to the customer’s bank account provided at the time of applying for the bond,” as per RBI’s frequently asked question (FAQ). The above-mentioned process is for when SGBs are held in non-demat mode.

If the said SGBs are held in demat mode, then the process is slightly different. According to a blog by Zerodha, “To redeem the SGB after the fifth year, complete and sign the redemption form and send it to the following address: Zerodha, 153/154, 4th Cross, J.P Nagar 4th Phase, Opp. Clarence Public School, Bengaluru – 560078. The request for early redemption will be processed only if the forms are received at least 10 working days before the coupon payment date. The proceeds from the redemption will be credited to the bank account linked to the Zerodha account.”

Income tax exemption for premature redemption of SGB 2017-18 Series X

According to RBI’s FAQ, “Interest on the Bonds will be taxable as per the provisions of the Income-tax Act, 1961 (43 of 1961). The capital gains tax arising on redemption of SGB to an individual has been exempted. The indexation benefits will be provided to long-term capital gains arising to any person on transfer of bond.”