SGB 2019-20 Series X: Investors Set To Make Over 264% Gains Upon Premature Redemption

The Reserve Bank of India (RBI) has announced the premature redemption price for the 2019-20 Series X tranche of the sovereign gold bond (SGB) scheme. Notably, the tranche was issued on March 11, 2020. The RBI has notified today, September 11, 2026, as the premature redemption date.

SGB 2019-20 Series X Premature Redemption Date

RBI rules allow the premature redemption of SGBs after the fifth year from the date of issue on the date on which the interest is payable. The early redemption window allows investors who hold SGBs to liquidate their holdings before the end of the maturity period.

What Is The Premature Redemption Price & Total Return?

According to the RBI’s notification, investors can prematurely redeem their SGB 2019-20 Series X holdings at a price of Rs 15,328 per unit.

“Accordingly, the redemption price for premature redemption due on September 11, 2026, shall be Rs 15,328/- (Rupees Fifteen Thousand Three Hundred and Twenty-Eight Only) per unit of SGB based on the simple average of the closing price of gold for the three business days, i.e., September 08, September 09, and September 10, 2026,” the RBI said.

The SGB 2019-20 Series X was issued at Rs 4,260 for offline investors and at Rs 4,210 for online investors with a Rs 50 discount. Investors are set to make strong gains upon prematurely redeeming their holdings. Online investors will see an absolute return of approximately 264 per cent, indicating absolute gains of Rs 11,118 per unit, while offline investors will see absolute returns of approximately 260 per cent, indicating absolute gains of Rs 11,068 per unit.

How Is The Premature Redemption Price Calculated?

The premature redemption price for SGBs is computed using 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).

For the SGB 2019-20 Series X, the premature redemption price was calculated specifically on the basis of the simple average of the closing prices on September 08, September 09, and September 10, 2026.

SGB investors who purchased the bond would have also gained an annual interest at the fixed rate of 2.50 per cent in addition to the amount they get upon redemption. However, this interest is credited semi-annually directly to the bank account of investors and remains taxable as per the income tax slab of the investor.

Understanding The Early Redemption Process

Investors who wish to exercise the premature redemption option must act within a specified timeframe. Investors have to submit the request for early redemption to either the receiving office, bank, or post office from where the bond was originally purchased.

Notably, the request has to be made at a minimum of ten days to one month before the next interest payment date. Once a request is verified and processed, the redemption proceeds, along with any pending interest, will be credited into your registered bank account.

Taxation Of SGB Returns

Investors need to be mindful of how SGB proceeds and interest are taxed. The bi-annual interest earned at the rate of 2.50 per cent per annum is added to the total income of the investor and taxed according to the investor’s applicable income tax slab.

On the other hand, the capital gains arising from the redemption of SGBs by an individual directly through the Reserve Bank of India, whether at final maturity or during the official premature redemption window after the fifth year, are exempt from capital gains tax under Section 47(viic) of the Income-tax Act.

However, if an investor sells their SGB units on the secondary market (stock exchanges) rather than redeeming them through the RBI window, the capital gains are taxable under applicable capital gains tax rules.