Investors in SGB 2021-22 Series-I to Realize 235% Gain with Pre-Mature Redemption

Sovereign Gold Bond (SGB) 2021-22 Series-I Premature Redemption Price Announced

The Reserve Bank of India has announced the premature redemption price for Sovereign Gold Bond (SGB) 2021-22 Series-I. Investors will have the option to redeem this SGB tranche prematurely from May 25, 2026. The premature redemption price has been fixed at Rs 15,840 per unit of SGB, based on the simple average of the closing prices of gold for the last three business days, May 20, May 21, and May 22, 2026.

The redemption price reflects the average of the India Bullion and Jewellers Association (IBJA) closing rate for 999 purity gold from the three days leading up to the exit date. This price is significantly higher than the original issue price, which was Rs 4,727 per gram for online buyers and Rs 4,777 per gram for offline subscribers.

Premature Redemption Details

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SGB 2021-22 Series-I was issued at Rs 4,727 per gram for online buyers, while offline subscribers paid Rs 4,777 per gram. Based on the premature redemption price of Rs 15,840 per gram, the bond will deliver an absolute return of Rs 15,840 - Rs 4,727 = Rs 11,113 per gram for online investors (without factoring in the interest).

In percentage terms, the return works out to:

11,113 ÷ 4,727 × 100 = 235.1 percent (approximately).

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So, the current value of a Rs 1 lakh investment in the SGB at the time of issuance would be:

Rs 1,00,000 + Rs 2,35,000 = Rs 3,35,000 (approximately).

In short, the investment becomes around Rs 3.35 lakh on premature redemption.

Tax Implications

From April 1, tax rules for SGBs have been revised, restricting tax benefits. Even primary issue subscribers have to pay capital gains tax on premature redemption. The capital gains tax exemption at maturity is restricted to original subscribers who hold their bonds for the full eight-year tenure. Those who bought SGBs from the secondary market will no longer qualify for tax-free redemption, even if they hold the bonds till maturity.