Sovereign gold bonds due for premature redemption on August 11 delivered upto 20% CAGR

SGBs have an eight-year maturity, but investors can opt for early redemption from the fifth year onwards — only on interest payment dates

The Reserve Bank of India (RBI) has announced the premature redemption price for two tranches of Sovereign Gold Bonds (SGBs), available for exit on August 11, 2025.

The 2019-20 Series IX (issued in February 2020) and the 2020-21 Series V (issued in August 2020) will be redeemed at Rs 10,070 per gram. This figure is based on the simple average of closing prices for 999-purity gold over the three business days before redemption, as published by the India Bullion and Jewellers Association (IBJA).

Investors in the February 2020 tranche have earned a compounded annual growth rate (CAGR) of 20% while the August 2020 tranche delivered 13.5% CAGR over five years. These returns exclude the additional 2.5% annual interest on the issue price, paid semi-annually — which makes the effective yield even higher.

The gains mirror gold’s strong performance over the last five years. In February 2020, gold was priced at Rs 4,070 per gram, just before the pandemic spurred a flight to safe-haven assets. By August 2020, when the second tranche was issued, prices had risen to Rs 5,334 per gram amid global uncertainty and interest rate cuts.

Since then, inflation fears, geopolitical tensions, and sustained central bank buying have kept gold prices elevated. This surge has also raised questions about the long-term sustainability of issuing SGBs  given the higher program costs and ballooning redemption obligations.

Should you redeem SGB?

It depends on your liquidity needs, but experts say that gold prices are expected to go up further.  One of SGBs’ biggest draws is their tax treatment. If held till maturity, capital gains are completely tax-free for individual investors. Moreover, the capital gains from premature redemption is also exempt from tax. The semi-annual interest income, however, is taxable as per the investor’s slab rate. However, when sold in the secondary market  capital gains tax applies on SGB including surcharge and cess.

As government-backed securities denominated in grams of gold, SGBs eliminate the risks of theft, storage costs, and purity concerns that come with physical gold. They are issued by the RBI in consultation with the Government of India and can be held in demat or certificate form. SGBs have an eight-year maturity, but investors can opt for early redemption from the fifth year onwards . They can also be traded on stock exchanges.