The repayment rate of the 1st tranche of sovereign bonds on gold is 80% higher than the issue price
MUMBAI: The Reserve Bank of India (RBI) set the redemption price for the first tranche of sovereign gold bonds (SGB) at Rs 4,837 per unit. According to a press release issued by the central bank, the price is based on the simple average closing price of gold of 0.999 purity from the Monday to Friday before the redemption date.
The first tranche was issued from November 5 to 20, 2015, at an issue price of Rs 2,684. This leaves investors with 80% gains (CAGR of 12.5%). For comparison, the Nifty CAGR over this period is around 13.5%. If we include dividends, Nifty’s yield is higher. Nippon India ETF Nifty BeES, an ETF that tracks Nifty, has generated a return of 14.85% over the past five years.
SGBs expire eight years after their date of issue, but the RBI allows premature redemption after the fifth year. This premature redemption window opens every six months on each coupon payment date. Premature repayment of the 1st installment of GBS became possible in November 2020 and the next payment date is today – May 29.
Investors must submit a redemption request to the bank / post office or agent from which they purchased the bonds at least one day before the payment date. Gains on SGBs are tax exempt at maturity.
However, the taxation in the event of premature redemption lacks clarity. According to some experts, in the event of premature redemption, the capital gains will be taxed as long-term capital gains and therefore investors will have to pay a tax of 20% after adjusting the purchase price for indexation. .
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