The Reserve Bank of India has opened the early redemption window for the April 2020 Sovereign Gold Bond tranche (2020–21 Series I), with the payout fixed at Rs 15,124 per unit. Eligible investors can opt for premature redemption starting April 28.
At this price, investors are looking at an absolute return of nearly 230%, based on the issue price. The redemption value has been calculated using the simple average of gold prices published by the India Bullion and Jewellers Association for April 23, 24 and 27.
For perspective, an investment of Rs 1 lakh at the time of issuance in April 2020 would now be worth nearly Rs 3.30 lakh upon exit.
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The SGB 2020–21 Series I bonds were originally issued at Rs 4,589 per gram for online subscribers, factoring in a Rs 50 discount, while offline investors paid Rs 4,639 per gram.
As per the framework, the redemption price for SGBs is linked to the simple average of closing prices of 999 purity gold over the three business days preceding the redemption date, as published by IBJA.
Tax Implications
Recent changes to tax rules have altered the attractiveness of early exits. Effective April 1, capital gains tax exemptions have been narrowed.
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Premature redemption of SGBs will now attract capital gains tax, even for primary subscribers. Tax-free redemption at maturity is available only to original investors who hold the bonds for the full eight-year tenure.
Investors who purchased SGBs from the secondary market will no longer be eligible for tax-free gains, even if they stay invested until maturity.
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