Sovereign gold bond tranche 2 and 4 can be redeemed at ₹4,804 per unit

If you had invested in tranche 2 and tranche 4 of sovereign gold bond (SGB), you can opt for premature redemption of the same on 5 August and 8 August at an issue price of ₹4,804 per unit, set by the Reserve Bank of India (RBI).

The redemption price is set based on the simple average closing gold price of 999 purity published by the India Bullion and Jeweller’s Association Ltd (IBJA) of the week (Monday-Friday) preceding the date of redemption.

If investors of these bonds opt to redeem it, they would do so for absolute gains of 85% (13% CAGR) and 54% (9% CAGR) respectively. The SGB 2016 1, that is the tranche 2, was issued at ₹2,600 per unit, while series 1 of 2016-17 gold bonds at ₹3,119 per unit.

SGBs are issued for a tenure of eight years but one can redeem sovereign gold prematurely after five years. The premature redemption window opens every six months on the date of the interest credit.

Investors have to submit a redemption request to the bank/post office or agent they purchased the bonds from at least one day before the payment date. Gains on SGBs are tax-free on maturity.

However, there is a lack of clarity on taxation on premature redemption. According to some experts, in case of premature redemption, the gains will be taxed as long-term capital gains and hence investors will have to pay a tax of 20% after adjusting the purchase price for indexation.

A person opting for premature withdrawal can approach the concerned bank or stock-holding corporation, post office, or agent 30 days before the coupon payment date.

Requests for premature redemption can only be entertained if the investor approaches the concerned bank or post office at least one day before the coupon payment date. The proceeds will be credited to the customer’s bank account provided at the time of applying for the bond.