SGB Redemption Explained: Should You Exit Early or Hold for 8 Years?

If you invested in Sovereign Gold Bonds (SGBs) a few years ago, you may be wondering whether now is the right time to redeem them. On August 11, 2025, the government announced two SGB redemptions that delivered CAGR returns of 19.9% and 13.5% - an impressive windfall for investors who subscribed back in 2020.

But the big question remains: Should you cash out early, or wait till the full 8-year maturity? Let’s break it down.

Great Returns in Just 5 Years

For the February 2020 SGB series, the issue price was ₹4,070 per gram. Today, investors were offered a redemption price of ₹10,070 per gram.

• That translates to a 19.9% CAGR over five years.
• On top of this, investors also earned 2.5% annual interest, pushing the effective yield above 21%.

These numbers are extraordinary, especially compared to equities, fixed deposits, or even real estate returns in the same period. It’s no surprise many investors are tempted to book profits now.

Why Wait for 8 Years?

Despite the attractive early exit, there are strong reasons to consider staying invested for the full 8-year tenure.

• Tax Advantage: If you hold SGBs for 8 years, all capital gains are 100% tax-free. Exiting early attracts 12.5% long-term capital gains (LTCG) tax.
• Gold Price Outlook: Many analysts believe gold could go higher due to:
  • A weakening US dollar
  • Global trade tensions and tariffs
  • Geopolitical instability
• Compounding Benefit: Longer tenure allows the small 2.5% interest and potential appreciation to keep working for you.

In short, patience could mean even better tax-free returns.

The Case for Early Redemption

On the other hand, the current offer is hard to ignore.

• Even after paying 12.5% LTCG tax, the effective yield is still 18.1% CAGR over 5 years - a phenomenal number.
• Gold has already rallied sharply in the last 5 years. Expecting it to keep rising without corrections may be overly optimistic.
• If your gold allocation exceeds 15% of your overall portfolio, it’s a good time to trim and rebalance.

Remember: Gold is a hedge, not a productive asset. While it protects wealth during uncertainty, it does not generate earnings like equities or businesses.

Key Lessons for Investors

Here are two timeless principles to apply before making the decision:

• “Too good to be true” often is. Gold’s stellar rally may not continue indefinitely.
• Markets love surprises. When everyone expects prices to keep rising, corrections often follow.

That said, if you’ve already secured 18%+ CAGR post-tax, you’re still far ahead compared to most traditional investments.

What Should You Do?

The right decision depends on your personal portfolio and goals:

• Redeem early if your gold exposure is already high (above 15%) or you want to rebalance into other assets.
• Stay invested if tax efficiency and long-term hedging are important for your plan.

Plan Your Gold Redemption the Smart Way

Talk to our experts and learn how to optimize your Sovereign Gold Bond redemption strategy.

Final Word on SGB Redemption

Both strategies - redeeming now or waiting 8 years - have strong merits. Early redemption offers certainty and excellent post-tax gains, while holding till maturity provides tax exemption and potential upside.

The golden rule: Keep gold exposure capped at 10–15% of your portfolio. Beyond that, it’s time to rebalance.

At the end of the day, in investments, as the saying goes: “A bird in the hand is worth two in the bush.”

Disclaimer: This article is for educational purposes only and should not be considered financial, tax, or investment advice. Please consult a qualified professional before making financial decisions.