The Reserve Bank of India (RBI) has announced the premature redemption price for the Sovereign Gold Bond (SGB) 2020–21 Series-VII, originally issued on October 20, 2020. Investors in this tranche will be eligible for premature redemption on October 20, 2025, marking the completion of the mandatory five-year lock-in period.
- Issue Date: October 20, 2020
- Premature Redemption Date: October 20, 2025
- Issue Price: ₹5,051 per gram
- Premature Redemption Price: ₹12,792 per gram
- Absolute Return: ₹7,741 (≈153.26%) excluding interest
- Tenure: 8 years (early exit allowed after 5 years)
RBI Notification on Premature Redemption
As per the RBI’s statement, in accordance with Government of India Notification F.No.4(4)-B(W&M)/2020 dated October 09, 2020, the premature redemption of Sovereign Gold Bonds may be permitted after the fifth year from the date of issue, on the interest payment date. Therefore, for the SGB 2020–21 Series-VII, the premature redemption date has been fixed as October 20, 2025.
How the Redemption Price is Calculated
The redemption value of SGBs is linked to the market price of gold. The RBI determines the redemption price based on:
“The simple average closing price of gold of 999 purity published by the India Bullion and Jewellers Association (IBJA) for the three working days preceding the redemption date.”
For this tranche, the relevant days were October 15, 16, and 17, 2025. Based on this calculation, the premature redemption price has been fixed at ₹12,792 per unit of SGB.
Impressive Returns for Investors
When issued in October 2020, the SGB 2020–21 Series-VII was priced at ₹5,051 per gram. The RBI’s redemption price of ₹12,792 marks a significant appreciation over five years.
- Absolute Return: ₹12,792 – ₹5,051 = ₹7,741
- Percentage Return: (₹7,741 ÷ ₹5,051) × 100 = 153.26% (excluding interest)
This gain does not include the annual interest of 2.5% paid semi-annually, which further enhances overall returns. Including interest, the effective yield would be even higher.
Understanding Sovereign Gold Bonds
The Sovereign Gold Bond (SGB) Scheme was launched by the Government of India as an alternative to physical gold investment. These bonds are denominated in grams of gold and offer investors the dual benefit of price appreciation and fixed interest income.
Key Features of SGBs:
- Tenure: 8 years with an option to redeem after 5 years.
- Interest: 2.5% per annum, payable semi-annually.
- Redemption: Market value of gold at maturity.
- Tax Benefits:
- No capital gains tax on redemption at maturity.
- Interest income taxable as per the investor’s income slab.
- Holding Form: In RBI’s books or in demat form, eliminating risk of theft or loss.
- No Making Charges: Unlike jewellery, there are no making or purity charges.
Why Investors Prefer SGBs
SGBs have gained popularity as they combine the safety of government-backed instruments with the returns of gold. They are ideal for long-term investors seeking:
- Portfolio diversification through gold exposure.
- Regular interest income.
- Tax-efficient and secure investment options.
Moreover, SGBs remove the storage and security concerns of physical gold, making them a modern digital form of wealth preservation.
Steps for Investors Opting for Premature Redemption
Investors planning to redeem their SGBs prematurely must follow certain procedures to ensure timely processing:
- Identify the SGB Tranche:
Check the issue date on your bond certificate or demat statement to confirm if your holding belongs to the 2020–21 Series-VII (issued on October 20, 2020). - Submit a Redemption Request:
File your redemption request with the bank, post office, or depository participant (DP) through whom you purchased the bond. - Adhere to Deadlines:
The redemption request must be submitted at least 10 days before the interest payment/redemption date — in this case, before October 10, 2025. - Await Credit:
Upon successful verification, the redemption amount will be credited directly to the registered bank account on or around October 20, 2025.
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