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Ramalingam Kalirajan |10881 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Apr 29, 2025

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more

Question by Puneet on Apr 29, 2025

Hi Madam, I purchased 200gm of RBI Sovereign gold bond in August 2020. Should i go for early redemption or wait for 8 years .Regards Puneet Dave

Ans: You have invested in RBI Sovereign Gold Bonds (SGBs) in August 2020. You hold 200 grams, which is a sizeable investment. You are now considering whether to redeem early or hold till maturity. Let’s assess from all angles.

Understanding Your SGB Investment

You bought it in August 2020. The 8-year maturity will be in August 2028.

So, 3.5+ years are over. Around 4.5 years are still left.

You earn 2.5% annual interest on the issue price. That is paid half-yearly.

At maturity, you get full market value of gold (as per RBI price on maturity date).

Gains at maturity are fully tax-free if held till 8 years. This is the biggest advantage.

Early Redemption – What You Should Know

RBI allows early exit only after 5 years, and that too only on interest payout dates.

If you redeem before 8 years, capital gains are taxable.

Gains will be taxed at 20% after indexation if held more than 3 years.

That reduces the post-tax returns. You lose the full tax-free benefit.

Also, if you sell in the secondary market, prices may be lower than actual value.

Why It’s Better to Hold Till Maturity

The biggest reason to hold is zero tax on capital gains after 8 years.

You also continue to earn 2.5% annual interest, which is over and above gold price return.

The longer you stay, the more you benefit from compounding on gold price growth.

Your total return = Gold appreciation + 2.5% interest + Zero tax. This is unmatched.

Selling now will only give you part of this benefit. You will lose long-term compounding.

When Early Exit Can Be Considered

If you are in urgent need of money, then only consider early redemption.

If you are switching to another asset for a defined financial goal, then it's acceptable.

But even then, use the RBI redemption window (after 5 years), not the market.

Don’t sell SGBs on stock exchange. It gives lower price and liquidity is poor.

Suggested Action Plan for You

You have waited for 3.5 years. Just wait for the remaining 4.5 years.

You will get full value with 0% tax, which no other gold investment gives.

Keep the 2.5% interest going to your bank account. Use it or reinvest it.

Review again after August 2025 (5 years). But likely, maturity will be best option.

Holding till August 2028 will give you the maximum financial benefit.

Final Insights

Your SGB investment is in the right direction. It gives safe, tax-efficient, and stable returns.

Holding it till maturity is almost always the best choice unless there is urgent need.

Don’t be influenced by short-term gold price movements. Let it grow tax-free.

You have made a smart decision in 2020. Just give it the full 8 years to reward you.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in

https://www.youtube.com/@HolisticInvestment

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.