Sovereign Gold Bond 2019-20 Series VIII premature redemption: 35th in the country (SGB 2019-20 Series VIII) Bond holders are getting the opportunity to sell Sovereign Gold Bond before maturity today on Tuesday (January 21, 2025). This bond will mature on 21 January 2028. However, only bond holders who have applied for it can redeem this bond before maturity on January 21. The application date for bond holders interested in premature redemption was from December 21 to January 13.
Today is the first premature redemption of this bond. RBI data shows that a total of 522,119 units were purchased for this bond.
What Is there a premature redemption price?
The issue and redemption prices for Sovereign Gold Bonds are determined based on the IBJA rates for 24 karat gold (999). As per the rules, the premature redemption price for Sovereign Gold Bond is the average of the closing prices of 24 karat gold (999) received from IBJA for the 3 business days immediately preceding the date of premature redemption. Since January 18 and January 19 are Saturday and Sunday respectively, RBI has fixed the premature redemption price of this series on the basis of the closing prices of January 16, January 17 and January 20. The average of the closing prices of January 16, January 17 and January 20 is Rs 7,926, hence the premature redemption price of the 35th Sovereign Gold Bond is Rs 7,926 per unit.
Source: IBJA
Now let us know that those bond holders who Before maturity on 21 January How much will they earn if they redeem it?
earning without paying tax
This sovereign gold (IN0020190537) It was issued on January 21, 2020 at an issue price of Rs 4,016. While the premature redemption price is Rs 7,926 per unit. Accordingly, if this series is redeemed before maturity, the bond holders will get a gross return (capital gain) of 97.36 percent. Online bond holders will be more benefited as they will get a discount of Rs 50 per unit compared to the issue price on the purchase of this bond. Such bond holders will get a gross return of 99.85 percent on premature redemption of this bond.
earnings after paying tax
In case of premature redemption, if bond holders are selling the bonds after 12 months of issue, they will have to pay 12.5 per cent long-term capital gains (LTCG) tax on the capital gains.
Now let us calculate the long-term capital gains tax, gross return and annual return in case of redeeming this bond before maturity:
Purchase Price/Issue Price: Rs 4,016
Redemption price: Rs 7,926
Taxable capital gain: Rs 7,926-4,016 = Rs 3,910
Long-Term Capital Gains (LTCG) Tax (12.5%): Rs 489
Earning after paying tax: 3,910 – 489 = Rs 3,421
Redemption price (after deducting LTCG tax): 7,926 – 489 = Rs 7,437
offline bond holder
gross return (%) : 85.18%
annual return (CAGR): 13.12%
online bond holder
gross return (%) : 87.52%
Annual Return (CAGR): 13.40%
earning by adding interest
Investors received interest/coupon of 2.5 per cent per annum i.e. Rs 50.2 per six months for this series and Rs 502 during the holding period of 5 years. If we look at it this way, after adding interest, this bond 14.60 100% annual return (CAGR) can be obtained. to online bond holders 14.89 percent Will get annual return of Rs. For series issued after September 2016, interest has been reduced from 2.75 per cent to 2.5 per cent per annum.
Calculation of annual earnings (CAGR) by adding interest on this series of SGB:
Purchase Price/Issue Price: Rs 4,016
Redemption price: Rs 7,926
Taxable capital gain: Rs 7,926-4,016 = Rs 3,910
Long-Term Capital Gains (LTCG) Tax (12.5%): Rs 489
Earning after paying tax: 3,910 – 489 = Rs 3,421
Redemption price (after deducting LTCG tax): 7,926 – 489 = Rs 7,437
Interest: Rs 502
offline bond holder
Gross Return (%) : 97.68%
Annual Return (CAGR): 14.60%
online bond holders
Gross Return: 100.18%
Annual Return (CAGR): 14.89%
Now let us know what are the rules regarding premature redemption.,
When can you do premature redemption? ,
Investors also have the option to redeem Sovereign Gold Bond before maturity. You can redeem Sovereign Gold Bond before maturity after 5 years of its issue. RBI decides the date of premature redemption on the day on which interest becomes payable on this bond. Interest on this bond is paid every six months i.e. twice a year.
How is premature redemption price calculated?,
Premature Redemption Price is the average of the closing prices of 24 karat gold (999) received by IBJA for the 3 trading days immediately preceding the date of premature redemption.
What are the rules regarding tax ,
If you redeem before the maturity period, tax will be charged like listed financial assets. Meaning, if after purchasing Sovereign Gold Bond, you sell it before 12 months, then the income i.e. capital gain will be considered as Short-Term Capital Gain (STCG). Which will be added to your gross total income and you will have to pay tax as per your tax slab. But if you sell after 12 months, you will have to pay 12.5 percent long-term capital gains (LTCG) tax. But if you hold the Sovereign Gold Bond till its maturity i.e. 8 years, then you will not have to pay any tax at the time of redemption.