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5 Reasons Why SGB Is A Better Way To Invest in Gold

2 Mins 20 Dec 2022 0 COMMENT


One of the popular ways of investing in gold is through sovereign gold bonds. Of course, that is not the only method since you can also do gold investment through physical gold purchases and through gold ETFs They are all a play on the price of gold. However, the sovereign gold bond scheme brought out by the government and issued and managed by the RBI has some distinct advantages.

For starters, the gold bond scheme offers a fixed interest of 2.5% over and above what you earn in the form of gold price appreciation. That is an advantage in the sovereign gold bonds as a gold investment vehicle. Also, if you have an internet banking account or an internet trading account, it is possible to buy gold bonds online and such gold bonds can also be held as part of your regular demat account.

What is Sovereign gold bonds

Sovereign gold bonds are borrowings by the government where the interest payment and the physical holding of gold is guaranteed by the central government. Of course, the price risk is still there, if the price of gold falls. When you invest in sovereign gold bonds, the price in terms of 1 gram of gold is defined for each tranche and you can buy appropriate number of grams, subject to a maximum of 4 KG per individual. It is this quantity of gold that is guaranteed and at the time of redemption, you can get back the funds at the price prevailing at that point of time. It is a safer and more elegant way of investing in gold.

Investing in sovereign gold bonds is it worth?

Gold has emerged as an important asset class globally in the last few years and is one of the best ways to hedge against global uncertainty. Gold has typically done very well during macroeconomic and geopolitical crises, when other asset classes falter. Sovereign gold bonds reduce the risk of your overall portfolio, since gold has a low correlation with equities or with debt instruments. While there are no hard and fast rules, an allocation of about 10% to 15% in gold is regraded ideal and SGBs are one of the way of meeting this target.

The investment in sovereign gold bonds is a good idea due to the guarantee it offers, the regular interest it offers and the ability to participate in the price of gold in the long run. Holding gold in non-physical form does away with the risk of value depletion, storage, maintenance and custody. SGBs give all the benefits of holding gold, without the hassles of physical gold.

What are the benefits of investing in SGBs?

There are several unique benefits of investing in sovereign gold bonds.

a)  The investment principle (in grams of gold) and the regular interest payment is guaranteed by the central government.

b)  The 2.5% interest (subject to change) is an added advantage that makes gold bonds attractive compared to other modes like physical  mode and gold ETFs.

c) The process of buying and holding SGBs is quite simple, It can bought through any bank, post office, SHCIL or through your trading account on NSE and BSE. It can either be held in the form of an RBI issued acknowledgement or in your demat account.

d)  SGBs are free of capital gains tax if held for the full period of 8 years from the date of purchase. This makes sovereign gold bonds very attractive as it enhances the yield.

e)  At the end of the fifth, sixth and seventh year, the government offers to buyback the gold bonds through a special buyback window at market linked prices. However, the SGB capital gains are exempt from tax only if held for the full 8 year period.

Gold bond scheme and how to invest

Investments in the gold bond scheme can be made offline or online. In fact, digital investments in gold bond scheme entitle the investors to a discount of Rs50 per gram. Forms for application can be obtained through commercial banks, SHCIL, website of RBI, post offices and also through NSE and BSE. If you have an internet banking account with ICICI Bank or an internet trading account with ICICI Direct, you can invest online.


Sovereign gold bonds offer a good investment vehicle to diversify your risk and to get the benefit of fixed income and gold price appreciation.