Investors parking their earnings in Sovereign Gold Bonds (SGBs) are in for joy as the Reserve Bank of India (RBI) announced dates allowing investors to withdraw their SGB investments beforehand. The RBI recently issued a press release containing details of the SGB tranches scheduled for early redemption from April 01, 2023 to September 30, 2023 and timeframes for submitting early redemption requests.
Investing in SGBs
For the uninitiated, SGBs are government securities issued to those interested in buying gold on paper and can be used as an effective substitute for physical gold. The government introduced the SGB scheme in November 2015 as part of its gold monetization scheme. In consultation with the Government of India, the RBI began issuing tranches as part of the programme. The payment is determined based on how many grams of gold one wants to buy.
The RBI website clearly mentions, “The quantity of gold for which the investor pays is protected since he receives the ongoing market price at the time of redemption/ premature redemption. The SGB offers a superior alternative to holding gold in physical form. The risks and costs of storage are eliminated. Investors are assured of the market value of gold at the time of maturity and periodical interest. SGB is free from issues like making charges and purity in the case of gold in jewellery form. The bonds are held in the books of the RBI or in Demat form eliminating the risk of loss of scrip, etc.”
Should investors withdraw their SGBs early?
Many investors rue how they have to stay invested in these bonds for eight years, which they feel is a long period. To allay their worries, the RBI allows investors to prematurely redeem their investments after the fifth year from the date on which they were first issued. However, those looking for early encashment before five years may opt for the trading of their bonds on the stock exchange. On the other hand, early redemption requests will be considered only if the investor reports to the responsible bank or post office at least one day before the payment date.
While the love for gold and the intent to benefit from the persistent rise in the yellow metal’s prices to combat inflation is well known, many investors also want to know if the early redemption of SGBs is worth it.
It is evident that a lot depends on one’s financial goals. Many investors who feel that they have achieved financial independence and wish to gain from investment returns without continuing them can opt for early withdrawal of their SGB investments.
Viral Bhatt, Founder, Money Mantra, said, “Early redemption may be attractive if an investor needs cash for an unexpected expense or if they believe they can get a better return by investing in a different asset. However, early redemption may result in a loss if the market price of gold has fallen since the bond was purchased.”
Your SGB earnings would be taxed
The interest on bonds is taxable under the provisions of the Income Tax Act 1961. However, tax deducted at source does not apply to these bonds. Also, SGB withdrawals are exempt from capital gains tax. Long-term capital gains from bond transfers are eligible for price indexation. However, SGBs can be tax-free if you hold them till their maturity date.
If you are looking to redeem your SGB investments early, all you must do is go to the nearest bank or post office and apply for their redemption. The maturity proceeds on the sale of these bonds would then be credited to the bank mentioned in the records.