SGB 2019-20 Series VI: Investors To Make Over 270% Gains Upon Premature Redemption

Gold prices have delivered stellar returns amid rising demand for the yellow metal. Notably, Sovereign gold bond (SGB) investors are also set to benefit from this upswing in gold prices. Thus investors who purchased the SGB 2019-20 Series VI tranche in the primary issue are set to get a chance to redeem their holdings prematurely.

SGBs are securities issued through the Reserve Bank of India (RBI) on behalf of the Centre, and are denominated in grams of gold. The minimum investment quantity for investing in SGBs is fixed at 1 gram. SGBs come with a sovereign guarantee on both the principal and the interest payout. The scheme has a maturity of eight years. However, premature redemption is allowed after the fifth year from the date of issue, on the date on which interest is payable.

SGB 2019-20 Series VI Redemption Price

According to a release by the RBI, the premature redemption price for SGB 2019-20 Series VI is Rs 14,213 per unit. The central bank determined the price based on the simple average of the closing price of gold 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). Specifically, the calculation factored in the closing prices for October 27, October 28, and October 29, 2026.

“Accordingly, the redemption price for premature redemption due on October 30, 2026, shall be Rs 14,213/- (Rupees Fourteen Thousand Two Hundred and Thirteen Only) per unit of SGB based on the simple average of closing price of gold for the three business days i.e., October 27, October 28, and October 29, 2026,” RBI said. 

SGB 2019-20 Series VI Investors Set To Gain

The issue date for SGB 2019-20 Series VI was October 30, 2019. The bonds were originally issued at Rs 3,835 per gram for offline investors. For investors who applied online and paid digitally, the government offered a discount of Rs 50, bringing their issue price down to Rs 3,785 per gram.

Based on the premature redemption price of Rs 14,213, regular investors are set to make an absolute return of Rs 10,378 per gram, which translates to a percentage return of approximately 270.61 per cent. Investors who benefited from the online discount will secure an absolute profit of Rs 10,428 per gram, equating to a percentage return of around 275.51 per cent.

The initial investment has seen more appreciation due to the rise in gold prices over the years. Investors eligible for premature redemption would have also earned a yearly interest. The final amount will be credited to the investor’s bank account linked to their demat account automatically.

Taxation on SGBs

The redemption of SGBs is tax exempt for investors who hold them for the entirety of the eight year maturity period, provided they were allotted the bonds in the primary issue. However if the SGBs were bought from the secondary market, they are not tax exempt upon maturity.

However, the interest earned on the SGBs is not tax exempt. Thus investors would have paid yearly tax on the interest earned based on their income tax slab rate. Since this is a premature redemption, tax rules for early withdrawal may apply based on current regulations.

Gold's Stellar Returns Ahead of Festivities

Looking ahead, gold's stellar returns have continued to attract market attention. It remains to be seen how the yellow metal will trade ahead of the festive occasions of Diwali and Dhanteras. With historical trends often pointing to increased purchasing during this period, investors and consumers alike are closely watching the market dynamics, balancing the recent high prices against traditional festive buying.