'This 250% return is completely tax free, plus...': Alok Jain on Sovereign Gold Bond windfall

The Reserve Bank of India (RBI) has announced the final redemption price of Rs 9,924 per gram for the Sovereign Gold Bond (SGB) 2017-18 Series II, which matured on July 28, 2025. Originally issued in July 2017 at Rs 2,830 per gram (Rs 2,780 for digital buyers), the bond has delivered a remarkable 250.67% return over eight years, excluding the additional 2.5% fixed annual interest paid semi-annually.

Reacting to the impressive performance, Alok Jain, Founder of Weekend Investing, remarked, “This 250% return is completely tax-free, plus the 2.5% interest per year. That’s a post-tax CAGR of around 18.75% over eight years. Gold buyers are laughing all the way.”

The final redemption price was determined based on the average closing price of gold between July 21 and July 25, 2025, as reported by the India Bullion and Jewellers Association (IBJA).

SGBs have emerged as a favoured route for investors seeking gold exposure without the drawbacks of physical ownership. Backed by the Government of India, these bonds offer not only purity assurance and storage-free convenience but also semi-annual interest and full capital gains tax exemption if held to maturity.

Investors also have the option to exit after five years via RBI’s early redemption window or through the secondary market, offering flexibility.

This strong return underscores gold’s enduring appeal and cements SGBs as a highly effective, tax-efficient investment for long-term wealth creation.

A lucrative investment vehicle

Launched in July 2017 at an issue price of Rs 2,830 per gram (Rs 2,780 for digital purchases), SGB Series II has handsomely rewarded investors, mirroring gold's robust price trajectory. Beyond substantial capital appreciation, SGBs offer the security of sovereign backing, inflation protection, and predictable income, making them a favored instrument for both conservative and long-term investors.

Unlike physical gold, which involves storage costs and purity concerns, SGBs provide clean, paperless exposure to gold with the added benefit of biannual interest payouts. Furthermore, SGBs held to maturity are exempt from capital gains tax, making them highly tax-efficient. Investors also have the flexibility to exit prematurely after five years via the secondary market or through RBI's early redemption windows.

The maturity payout is directly credited to the investor’s registered bank account, simplifying the process compared to encashing physical assets. These bonds have proven particularly popular among retail investors seeking to diversify their portfolios with an asset that offers both stability and appreciation.

Understanding interest on SGBs

SGBs offer a unique dual benefit -- potential capital appreciation linked to gold's market price and a consistent income stream through fixed interest payments. This interest component provides investors with a predictable return over the bond's tenure.

Interest Calculation and Payment Details:

Interest Rate: A fixed interest rate of 2.50% per annum is applied to the initial investment value.

Payment Frequency: Interest is disbursed semi-annually, meaning payments are made twice a year.

Payment Mode: The interest amount is credited directly to the bank account associated with your Demat account, ensuring a seamless and convenient payout.

For example:

Consider an investment of Rs 10,00,000 in an SGB issue:

Annual Interest: Rs 10,00,000 × 2.5% = Rs 25,000

Semi-Annual Payment: This annual interest is then paid out as Rs 12,500 every six months, directly deposited into your linked bank account. 

You'll earn a guaranteed annual interest of 2.50% on the issue price of your SGBs. Plus, if you transfer your bonds, any long-term capital gains qualify for indexation benefits. Your investment also comes with a sovereign guarantee on both the principal amount and the interest earned, offering an extra layer of security.

Future issuances of SGBs

While this SGB tranche matures, the government is simultaneously reviewing the roadmap for future issuances. The last tranche was issued in February 2024, and upcoming SGB releases will be calibrated based on gold price trends, market appetite, and borrowing costs. SGBs also serve a broader purpose within the government’s debt management framework, providing an investment avenue for the public while reducing demand for physical gold imports, which can strain India’s current account.

Recently, the Government of India clarified that any fresh SGB tranches will only be issued if they align with the objective of minimising borrowing costs. Responding to a query in the Rajya Sabha on July 22, 2025, the Ministry of Finance explained that the high price of gold has made SGBs a relatively expensive borrowing tool. Consequently, no new SGB tranches have been announced recently. The government assesses various fundraising options—such as Government Securities and Treasury Bills—based on cost-efficiency before choosing the most viable instrument to mobilise funds.