As gold prices have risen more than three times in five years, you may be tempted to go for an early redemption of five tranches of Sovereign Gold Bonds (SGBs) next month. If your portfolio is overweight on gold, the window offers an exit option without secondary market discounts. But if you do not need immediate liquidity, holding for the full eight years is a smarter move to keep your entire gains tax-free.
For SGB 2021-22 Series V, the redemption price was fixed at Rs 15,295 per unit (August 17, 2026) as against the issue price of `4,790 (August 17, 2021), a compounded annual growth rate of 26.4%. The annualised return will vary across the five SGB tranches up for redemption next month as each was issued at a different price and has a different holding period.
The Reserve Bank of India allows premature redemption of SGBs after the fifth year from the date of issue of the bonds on the interest payable dates. The redemption price is fixed based on the simple average of closing price of gold of 999 purity of previous three business days from the date of redemption, as published by the India Bullion and Jewellers Association Ltd (IBJA).
Vishal Goenka, co-founder, IndiaBonds.com, says investors exercising the early redemption window across tranches maturing from September 7-17, 2026, are locking in stellar annualised returns, a testament to gold’s multi-year run. “Add the sovereign-backed 2.5% annual coupon, paid semi-annually on the issue price, SGBs have delivered one of the most rewarding fixed-income-plus-commodity payoffs in modern Indian investing history,” he says.
Capital gains tax
Before Budget 2026, all redemptions of SGBs were treated as non-transfers and hence the gains were not taxed. Now, the capital gains exemption applies only where the bond was subscribed at the original issue and held continuously until redemption on maturity period of eight years. Premature redemption before maturity is taxable at 12.5% from April 1, 2026.
Investors considering premature redemption should look at their returns on a post-tax basis. The capital gain will be the difference between the redemption value and the original acquisition cost of the SGBs. The 2.5% annual coupon should be considered separately, as it is taxable as income.
Nishchay Nath, founder & chief executive officer, BondScanner, says the decision to redeem should not be based only on the headline appreciation in gold. “Investors should compare the post-tax proceeds from redemption with the potential benefit of continuing to hold the SGBs and earning future coupon income and any further appreciation in gold,” he says.
For early redemption, the bond holders should approach the channel through which they hold the bond. If held in physical form through a bank, Stock Holding Corporation of India Limited (SHCIL), or post office, they can submit the redemption request to that receiving office. If held in demat, the request would go through National Securities Depository Limited, Central Depository Services (India) Limited, or their broker. They should submit the redemption form 10 to 30 days before the coupon date.
On the redemption date, the proceeds are credited automatically to their registered bank account. Unlike a market sale, there is no counterparty or bid-ask to worry about as the price is a fixed IBJA-based rate. Investors who miss the window will have to wait for the next eligible interest-payment date or hold the bonds till maturity.
Disclaimer: This article is for informational purposes only and should not be construed as investment advice. Investors should assess their financial goals, risk appetite and consult a qualified financial advisor before making investment decisions.
Every financial journey has a turning point. What’s yours?
Financial Express is launching a new series highlighting real experiences with money, investments, and the taxman. Did a sudden tax rule catch you off guard? Did a piece of financial advice change your life? Your story could provide invaluable, practical lessons for thousands of fellow taxpayers. Share your experience with us. We respect your privacy: no stories will be featured without a direct conversation and your full consent. Thank you.