Sovereign Gold Bond Lock-In Period and Maturity

The Sovereign Gold Bond (SGB) scheme is a popular way to invest in gold without worrying about its storage. One key aspect to understand before investing is the SGB lock-in period and their maturity terms. Knowing these details helps you plan your investments in a better way and make the most of this gold-backed financial tool.

What Is the SGB Lock-in Period?

The lock-in period for Sovereign Gold Bonds operates at different levels and it is important to understand each one:

1. Listing Lock-in Period

After the subscription of an SGB issue closes, there is an initial lock-in of six months before the bonds are listed on stock exchanges. During this time, no trading or liquidity is available for the bonds. Even after listing, trading volumes in the secondary market remain very low, making it challenging to exit through this route.

1. Capital Gains Lock-in Period

The following are the types of capital gains applicable to these bonds: 

• Short-Term Capital Gains (STCG): If SGBs are sold within 12 months of purchase (only possible through the secondary market), the gains are treated as short-term capital gains.
• Long-Term Capital Gains (LTCG): SGBs held for more than 12 months qualify for LTCG. 

1. Early Redemption Window

From the fifth year onwards, the government provides an annual redemption window at the end of the fifth, sixth and seventh years. Investors can redeem bonds during these windows, and the gains are treated as long-term capital gains and taxed accordingly.

1. Complete Lock-in of 8 Years

SGBs have a total tenure of eight years. If held until maturity, any capital gains realized are entirely tax-free. This tax exemption applies only if the bonds are held for the full 8-year period.

What Are the Maturity Dates of the Latest SGB Bonds?

Here is a table showing the maturity dates of the latest Sovereign Gold Bonds:

What Happens When You Break the SGB Lock-in Period?

Breaking the lock-in period refers to selling Sovereign Gold Bonds before the completion of the stipulated tenure. There are three main scenarios when this occurs:

1. One when you sell the bonds within 12 months, the profits are classified as short-term capital gains. These bonds are then taxable on the basis of an investor's tax bracket. This applies to non-equity assets like gold bonds.
2. After the 5th, 6th or 7th year, the RBI offers a buyback option where investors can redeem their bonds. If you break the 8-year lock-in at this stage, the profits are considered long-term capital gains and taxed at 12.5% without indexation. 
3. If you hold these bonds for the full 8-year term, the capital gains are tax-free. However, note that any losses incurred cannot be offset, so it is important to plan your exit by the seventh year to maximise benefits.

Final Word

Knowing the SGB lock-in period is crucial for making informed investment decisions. While the lock-in period restricts liquidity, the total tenure of eight years offers tax-free capital gains for long-term investors. By keeping track of the redemption windows and tax implications, you can make the most of your Sovereign Gold Bonds and plan your exit strategy effectively.

If you want to invest in bonds with high returns, consider downloading the Stable Money app. By investing with it, you can earn up to 12% returns on bonds.

Download the Stable Money app today and start your investment!