SGB - I maturing? What should you do?

Riya, an IT professional, was very happy. She had invested in the first issue of sovereign gold bonds, or SGBs, purchasing 100 grams of gold. Now, these bonds are maturing on 30th November, 2023. The Reserve Bank of India had pre-determined the value of these bonds, and now, Riya was earning handsome returns on them. First off, let’s understand when and how much did Riya invest in SGBs, the amount she received on bond maturity, how will she get these funds, and also, what should she do with them now?
Essentially, SGBs are a government scheme, wherein gold bonds are issued by the RBI on its behalf. They come with a maturity period of 8 years, and were first issued on 30th November, 2015. Back then, they were sold at Rs 2,684 per unit. One unit is equivalent to 1 gram of gold. Riya had invested Rs 2,68,400 for buying 100 grams of gold.

What about returns?
Right now, the bond’s maturity value has been set as Rs 6,132 per unit. This is calculated on the average price of gold between 20 to 24 November, as released by the Indian Bullion and Jewellers Association (IBJA). Going by this, Riya will earn Rs 6,13,200 for her 100 units. Compared to Riya’s initial investment of Rs 2,68,400, this is a 128.46% rise. In other words, Riya’s investment grew over 2 times. However, this translates to a compounded annual growth rate (CAGR) of 10.88%.

Interest Earnings
When Riya had invested in these gold bonds, the annual interest payable was fixed at 2.75%. For all series issued post September 2016, the interest rates were set at 2.5%. The interest is directly credited to the investor’s bank account every 6 months. Since the interest earned on each unit is 2.75%, Riya raked in Rs 59, 048 on her 100 units in 8 years. Adding this to her total returns, Riya earned Rs 6,72,248. In short, Riya’s returns were close to 150.46%. Taken on CAGR basis, this comes down to 12.16%

How will you get the funds?
There are two ways to buy SGBs. The first is via the bank, and the other is through the stock exchange. Once your SGBs mature, you will receive funds in the account of the same bank through which you have purchased these SGBs. If your bonds are in a demat account, the funds will be directly credited to the bank account which is linked to your demat account. You need not undertake any other paperwork for this. Riya has changed 3 jobs over the past years. If her bank account, which is linked to her SGB investments has been deactivated, or her KYC details have not been updated, she should immediately check the same. This is because in the event of her account being deactivated or KYC details not being updated, she will not be able to receive the maturity amount in her bank account.

What about taxes?
The interest earned on SGBs is added to the annual income of the investor, and then, this income is taxed per applicable tax slabs. Whatever amount Riya receives upon bond maturity will be entirely tax-free. That is because if you have purchased these bonds off the secondary market, hold them in demat form and redeemed only after maturity, the capital gains you earn stay entirely tax-free. That’s why Riya is happy, since she will soon receive Rs 6,13,200 in her account, without any tax liability. From an investment perspective, SGBs are a good scheme. Over the past 8 years, SGBs have yielded almost twice as much returns compared to FDs of government banks. If you have not invested in SGBs as of now, you can certainly consider doing so now.