Summary of this article
RBI sets SGB premature redemption price at Rs 15,904
Investors secure massive 250 percent absolute returns on holdings
New tax rules apply capital gains to secondary buyers
Gold prices continued to surge on May 19 as the escalating crisis in West Asia raised the demand for safe-haven assets. Investors who have gold in their portfolio have received strong returns from their holdings amid the price rise. Sovereign Gold Bond (SGB) investors have also benefited significantly from the price rise.
On May 19, investors who hold SGB 2020-21 Series-II units will get a chance to redeem their holdings amid the price rise. Notably, the Reserve Bank of India has fixed May 19 as the date for premature redemption of SGB 2020-21 Series-II.
SGB 2020-21 Series-II Premature Redemption Date
Investors who hold the SGB 2020-21 Series-II can prematurely redeem their investments as RBI’s rules allow premature redemption of SGBs post the fifth year from the date of the issue of gold bonds on a date on which interest is payable.
How Much Will SGB 2020-21 Series II Gain
Investors can prematurely redeem their SGB 2020-21 Series II holdings at a price of Rs 15,904 per unit. Notably, the SGB 2020-21 Series II tranche was issued at Rs 4,540 per gram for investors who purchased the bond online. On the other hand, the price was fixed at Rs 4,590 for offline investors.
Based on the redemption price set by the RBI, investors are set to get an absolute return of 250 per cent on May 19 if they prematurely redeem their holdings. Thus, investors who purchased SGBs online are set to make gains of Rs 11,364 per unit, and investors who purchased SGBs offline are set to make gains of Rs 11,314.
How Is The Premature Redemption Price Calculated
The premature redemption price for Sovereign Gold Bonds is determined by calculating the simple average of the closing prices of 999 purity gold published by the India Bullion and Jewellers Association (IBJA). Prices from the three working days before the redemption date are used for calculating the simple average.
For SGB 2020-21 Series II, the premature redemption price was determined on the basis of the simple average of the closing prices on May 14, May 15, and May 18, 2026.
Apart from the returns earned upon redemption or premature redemption, SGB investors also receive interest at the fixed rate of 2.50 per cent per annum. However, this interest is credited semi-annually to the bank account of an investor and remains taxable according to the individual income tax slab rates.
SGBs In 2026
The landscape for Sovereign Gold Bonds has undergone significant shifts recently. The issuance of fresh tranches has been paused. The last SGB tranche was issued in February 2024. Notably, the last tranche to be issued was the 2023-24 Series IV.
Additionally, the Finance Ministry introduced strict changes to the tax rules for SGBs in the Union Budget 2026. As a part of the updated regulations, the capital gains tax exemption for SGBs is now limited to only original subscribers who bought the bonds from the RBI and hold them until maturity. Thus, any secondary market buyers purchasing SGBs through stock exchanges will face a 12.5 per cent long-term capital gains tax upon redemption.
Amid the pause in new SGB tranches, retail investors looking for efficient investment avenues can consider investing in paper-gold by investing in Electronic Gold Receipts (EGRs) or Gold Exchange Traded Funds (ETFs) to capture the strong rise in gold prices.
