Sovereign Gold Bonds: Should you redeem early or hold till maturity?

Premature redemption through RBI's buyback facility, available from the fifth year, allows tax-free exit for individuals.

Gold's glittering rally in 2025 has posed a dilemma before investors – should they exit early and lock in gains, or hold for longer term benefits?

Sovereign Gold Bonds (SGBs) offer investors exposure to gold without the hassle of worrying over physical storage. Priced in grams, investors earn 2.5 percent annual interest – credited semi-annually - and slated to mature in eight years with the possibility of premature redemption after five years via an RBI window.

Premature Redemption: When Does it Make Sense

Premature redemption through RBI's buyback facility, available from the fifth year of investment, allows tax-free exit for individuals.

"If you require funds and wish to avoid selling in the secondary market (which often trades at a discount), exercising the early redemption option is better," said Thomas Stephen, Director & Head - Preferred at Anand Rathi. For those who believe that gold prices are likely to correct or may be stay rangebound, locking in gains through redemption may make sense.

If gold now forms a disproportionately high share of your portfolio after the recent rally, then partial redemption can help restore the asset allocation balance. In several experts’ view, the Ideal allocation to gold should be 15 percent of the portfolio. Given gold's upward rally, Chirag Mehta, the Chief Investment Officer at Quantum AMC is advising an early exit if the gold allocation has become “significantly skewed in your investment portfolio”.

With SGBs offering 2.5 percent taxable annual interest, if inflation stabilizes and real interest rates become positive, gold might lag behind other assets in performance, making early redemption a fair option.

NS Ramaswamy, Head of Commodities & CRM at Ventura said, “Liquidity needs or better investment opportunities also justify redemption.” He said recent windows from RBI after holding for five years have offered significant returns for investors locking in their profits without exposing to future market volatility.

Benefits of Holding till Maturity

Staying invested for the entire eight-year tenure of the SGB can maximize advantages for investors.

Ramaswamy said the tax-free gains at maturity, combined with potential upside in gold prices, make it a "tax-efficient exit" for investors who are bullish on gold.

The 2.5 percent interest provides steady income, taxed at slab rates. Gold serves as a long-term inflation hedge with no purity or storage risks. SGBs also offer convenience and safety, setting them apart from physical gold.

Quantum’s Chirag Mehta said, "Gold remains a good diversification asset amid global economic challenges and potential dollar depreciation."

Also Read | Zerodha to offer US stocks: What GIFT City route means vs foreign broker tie-ups

Tax Nuances in Redemption and Sales

Ankit Jain, Partner at Ved Jain & Associates has cited tax advantages in seeking an exit. “Capital gains on redemption via RBI windows—premature (post-five years) or at maturity (eight years) — is tax-free for individuals,” said Ankit Jain.

In secondary market transfers, long-term capital gains tax applies at 12.5 percent for holdings over 12 months (post-July 23, 2024 transfers, without indexation). Short-term sales (holdings under 12 months) are taxed at slab rates.

Gold Price Outlook: Volatile yet Bullish

Short-term volatility in gold prices may persist, according to several experts. Ventura’s Ramaswamy said the US Federal Reserve's latest 25 bps rate cut in October 2025 had initially boosted gold but Chairman Powell's hawkish tone on a December rate cut has moderated gains. "Market volatility is expected to continue in the near term, with buying on dips recommended," Ramaswamy added.

Long-term drivers remains constructive, according to Thomas Stephen of Anand Rathi. “We believe the structural case for gold remains constructive over a long-term horizon. Factors like sustained central bank accumulation and currency diversification continue to underpin demand,” said Stephen.

According to Quantum’s Chirag Mehta, the demand for gold as a preferred asset is expected to remain strong amid ongoing structural challenges in the United States.

Also Read | Sovereign Gold Bond 2019-20 Series-VI: RBI announces redemption price, investors to get 213% absolute return

Strategic Considerations and Alternatives

Experts also said that investors need to evaluate their portfolio goals. Premature redemption suits liquidity, rebalancing. However, there are benefits in holding for tax savings, income and hedge against uncertainty.

If liquidity is a major factor for investors, Quantum’s Chiraj Mehta suggests gold ETFs as a “more liquid investment option”.

With gold near record, experts believe partial RBI redemptions of SGBs can secure gains tax-free while retaining some exposure, while full maturity optimizes returns for those bullish on gold.