Premature withdrawal: Redemption price for on this SGB tranche is 109% higher than issue price

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The Reserve Bank of India (RBI) has fixed the price for premature withdrawal of Sovereign Gold Bond Series IV of SGB 2017-18) and the due date is on April 21, 2023.

The bond has an eight-year term, although under the sovereign gold bond scheme, early redemption of a gold bond is permitted after five years from the bond’s issue date and on the day that interest is due. Accordingly, the next due date of premature redemption of the above tranche shall be April 21, 2023 (April 22 and April 23, 2023 being Saturday and Sunday respectively).

Also read: Sovereign Gold Bonds: What are the tax implications?

SGB premature redemption rate
The premature redemption rate of Sovereign Gold Bond Series SGB 2017-18, Series IV is Rs 6038 per unit.

Sovereign Gold Bond 2017-18 scheme Series IV issue price was Rs 2895 per gram. The RBI set the redemption price per gram at Rs 6038, an increase of Rs 3143. So, if the investors choose to withdraw their money too soon, their absolute return will be 108.57%.

Note that 2.50% p.a.(semi annual) on the amount of initial investment.

How is SGB value calculated?
The simple average of the closing gold price for the previous three business days, as reported by the India Bullion and Jewellers Association Ltd., will be considered as the basis for the redemption price of SGB (IBJA). According to the RBI press release, “Accordingly, the redemption price for the premature redemption due on April 21, 2023 (April 22 and April 23, 2023 being Saturday and Sunday respectively) shall be Rs 6038/- (Rupees Six thousand thirty-eight only) per unit of SGB based on the simple average of closing gold price for the last three days April 18, April 19 and April 20, 2023.”

Loan against Bonds
For any loan, the Gold Bonds issued under this Scheme may be used as collateral security. The Bonds issued under this Scheme will be subject to the same Loan to Value ratio as any regular gold loan prescribed by the Reserve Bank of India.

Tax treatment
The interest on the Gold Bond shall be taxable as per the provisions of the Income tax Act, 1961 (43 of 1961). The capital gains tax arising on redemption of these bonds to an individual is exempted. The indexation benefits will be provided to long-term capital gains arising to any person on transfer of bond.

Sovereign Gold Bond
Sovereign Gold Bond to be issued on behalf of the Government of India by the Reserve Bank of India. The bonds will only be available for purchase by residents, HUFs, Trusts, Universities, and Charitable Institutions. The Bonds will be denominated in multiples of gram(s) of gold with a basic unit of 1 gram. A Holding Certificate will be issued to the investors. The Bonds are eligible for conversion into demat form.

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