The premature redemption of the Sovereign Gold Bond (SGB) 2017-18 Series VI, issued on November 6, 2017, matured for eligible withdrawal on November 6, 2024. This round of premature redemption offered investors a decent gain, with the redemption price set at ₹7,850 per unit—more than double the original issue price of ₹2,945 per gram, marking 166.5% return over seven years.

This calculation excludes the annual interest rate of 2.50% paid biannually during the bond’s tenure.

How redemption price is calculated

The redemption price is determined by the simple average of the closing gold prices (999 purity) for the last three business days before the redemption date, as reported by the India Bullion and Jewellers Association Ltd (IBJA).

For this SGB tranche, prices from November 2, 4, and 5, 2024, were averaged to arrive at ₹7,850 per gram.

Understanding SGB redemption and returns

While these bonds are structured for an eight-year term, investors can redeem after five years, on specific due dates tied to interest payouts.

The early withdrawal appeal lies in:

• High returns: SGBs track the price of gold, which has generally appreciated over time.
• Interest payments: Investors earn a 2.5% annual interest, paid semi-annually, in addition to price appreciation.

Factors to consider before early redemption

Liquidity needs

If you need funds urgently, early redemption can be a viable option, especially during a high gold price phase.

However, with windows open only twice a year, timing matters.

Tax efficiency

SGBs redeemed after five years are exempt from capital gains tax, adding a tax advantage that’s not available in other gold investments.

Gold price expectations

For investors who anticipate further gold price rises, waiting until full maturity could yield even higher returns. Historical data suggests gold generally performs well during economic uncertainties, which can argue against early redemption for those not in urgent need of liquidity.

If you miss a premature redemption window, as many did this November, consider alternative reinvestment plans or wait until the next window, assessing current and projected gold prices.