The government’s Sovereign Gold Bond (SGB) scheme was quietly discontinued in February 2024, ending a nine-year initiative that let Indians invest in gold without holding the metal.
For nearly a decade, SGBs offered a rare mix of sovereign backed, gold-linked returns, and a fixed 2.5 per cent annual interest. With no new issues expected, investors holding earlier tranches now face a choice. Should you redeem now or stay invested till maturity? The answer depends on your financial goals, asset mix and view on gold’s prospects.
What made SGBs stand out
Each bond represents one gram of 999-purity gold, issued by the Reserve Bank of India on behalf of the government. The tenor is eight years, with an exit option after five. At maturity, the redemption price is based on the average closing price of 999-purity gold for the last three working days, as published by the India Bullion and Jewellers Association (IBJA).
Along with price appreciation, investors earned a 2.5 per cent annual interest credited twice a year. The biggest attraction, however, was taxation: capital gains on redemption at maturity through the RBI are completely tax-free. This combination of safety, steady returns and convenience made SGBs one of the most efficient ways for Indians to hold gold digitally.
Now that the scheme has ended, the existing bonds have become finite. The choice before investors is simple — stay invested or redeem early.
When to redeem early?
For some investors, redeeming SGBs after five years is a rational step rather than a loss of faith in gold. With gold prices having surged nearly 90 per cent since the pre-pandemic period, portfolios may now be overweight on the metal. If gold forms more than 15 per cent of total assets, partial redemption can help restore balance.
Liquidity is another factor: while SGBs are listed, trading volumes remain low and prices often trail fair value. Redeeming directly through the RBI after five years ensures smoother access to funds, especially for near-term needs such as education, healthcare or property purchases.
Finally, if one expects global inflation to moderate or interest rates to stay high, gold’s upside could flatten. In such a scenario, reallocating part of the proceeds to equity or debt instruments can improve risk-adjusted returns.
When to hold till maturity?
For most investors, holding SGBs to maturity remains the wiser choice. The tax advantage alone is compelling: capital gains are entirely tax-free when redeemed through the RBI at maturity, while premature sales may attract tax depending on one’s income bracket and holding period.
With no new tranches expected, existing bonds also gain scarcity value, backed by government assurance, transparency and safety. After five years, investors retain the option to redeem on any interest payment date, offering flexibility without losing the 2.5 per cent annual interest or exposure to gold’s price movement.
In a world of geopolitical tension, currency swings and uneven growth, this mix of safety, liquidity, and steady returns ensures that SGBs continue to serve as a reliable stabiliser in long-term portfolios.
What should you evaluate?
Before deciding, weigh three factors: your asset mix, liquidity needs and market outlook. If gold’s share in your portfolio has grown beyond target due to recent price gains, partial redemption makes sense. If you expect large expenses in the next year or two, an early exit can help meet them. And if global interest rates remain high, gold’s near-term returns could flatten.
For those opting to redeem, ensure your bank details, PAN and KYC are updated with your bank or depository participant. The proceeds are credited to your registered account on the next interest payment date.
A shift in policy
The closure of the SGB scheme suggests a shift in policy. The government appears focused on directing household savings toward productive assets such as equities and bonds rather than gold-linked instruments.
Even so, SGBs proved that Indian investors are comfortable owning gold in electronic form when the product is transparent and well-structured. The scheme also helped reduce physical gold imports, aligning with the government’s goal of containing the current account deficit.
The takeaway
If your portfolio is balanced and liquidity needs are limited, holding your SGBs till maturity is wiser. You’ll earn steady interest, enjoy tax-free gains and stay invested in gold’s long-term growth. If you need funds or your gold exposure is high, redeeming after five years is equally valid.
The SGB scheme may have ended, but its value endures. It blended cultural attachment with financial prudence, reminding investors that gold works best not as a quick trade but as a stabilising element in a portfolio.
The author is CEO of Bankbazaar.com
