CHENNAI: As the first tranche of sovereign gold bonds (SGBs) are up for redemption, investors who held on the bonds they bought in 2015 stand to make a healthy 12.9% average annual return over the last eight years.
SGBs, first issued in 2015, are coming up for redemption on November 30 this year. The RBI last week announced the price for the final redemption due on November 30 will be Rs 6,132 per unit of SGB. Issued at a price of Rs 2,684 per gram, the first tranche of the SGB also offered an annual interest of 2.75%. Therefore, investors not only gained from increase in price of gold in the last eight years, they also earned an interest on their principal amount.
If a person who bought a single unit of SGB in 2015 and remained invested for eight years, he would not only make capital gains of Rs 3,448 (pre-tax), but also earn an interest income of Rs 590.5. Thus, his initial investment of Rs 2,684 would become Rs 6,722.5 (2.5 times the initial investment).
NSE Nifty during the same period has given an average annual return of 12%, while gold prices have gone at a compounded annual growth rate of 10.9%.“The first tranche of SGBs delivered a 10.88% CAGR on the back of strong performance of gold from the lows it saw in 2015. This is apart from the interest of 2.75% pa, making it a very attractive return for investors in the first tranche,” says Anil Rego, CEO and founder of investment advisory firm Right Horizons.
Both the capital gains as well as interest earned on SGBs are, however, taxable. While the interest earned is taxable at the rate applicable to a person in a particular tax bracket, the long-term capital gains is taxed at 20.8%. Sovereign Gold Bond was first launched in 2015 for individual investors. Ever since the government, through the Reserve Bank of India, has issued gold bonds in multiple series. Recently, the government issued SGBs on September 20, 2023.
Though, the bonds could also be held by a trust, a charitable institution and a university. Though the bonds come with a tenure of eight years, pre-mature redemption is permitted from the fifth year of the date of issue on the interest payment dates. The redemption price shall be fixed on the basis of the previous week’s (Monday – Friday) simple average closing price for gold of 999 purity.
