RBI’s Sovereign Gold Bond 2017-18 Series IV Offers 68% Absolute Return, 11% CAGR

If you had invested in Sovereign Gold Bond 2017-18 Series IV five years ago, you would have earned Rs 5,098 on your investment of Rs 2,987 per bond, fully tax exempt.
RBI’s Sovereign Gold Bond 2017-18 Series IV Offers 68% Absolute Return, 11% CAGR

The Reserve Bank of India (RBI) has fixed the premature redemption of Sovereign Gold Bond (SGB) Series IV of the 2017-18 series at Rs 5028 per bond. The SGB was issued on October 23, 2017, for Rs 2987 per bond. On October 21, it traded for Rs 5000 per bond on the National Stock Exchange (NSE) with the symbol ‘SGBOCT25IV’.

This particular SGB has given an annualised return of 11 per cent compound annual growth rate (CAGR) and an absolute return of 68 per cent.

Table showing the calculation of return percentage of SGB 2017-18 Series IV

RBI said the decision to move forward with the premature redemption date had been made since October 22 and 23 fell on the weekend (Saturday and Sunday). Hence, it said, October 21 is considered the first due date of premature redemption.

The interest on sovereign gold bonds is given semi-annually; hence, October 21 will be the first premature redemption date. In case you have missed exercising your bonds at this buyback window, you can wait for the second buyback window after six months, around March-April. The interest for this bond is 2.5 per cent and is taxable.

What Are The Ways To Redeem SGBs?

You can sell your SGBs in two ways. While one offers more tax efficiency, the other provides quick liquidity.

The Tax Efficient Process–RBI Buyback Window

In a frequently asked question, RBI said every ‘individual’ is exempted from capital gains tax arising on redemption of SGBs. So if you redeem your SGBs through the RBI buyback window, which happens from the fifth year onwards, you won’t incur capital gains tax.

Early Liquidity Process– Stock Exchanges

SGBs have eight-year tenure, with an option for redemption from the fifth year onwards. But if you want to get out of these bonds before five years, you must make them de-materialised before selling them on NSE or Bombay Stock Exchange (BSE).

If you already hold these bonds in demat, there is no need to de-materialise again. However, do note your stock broker may charge you brokerage for the transaction.

The transaction is termed a transfer of bonds; hence it is subject to capital gains tax, but you will get indexation benefits if sold after 12 months.

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