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Looking to buy Bonds? Here?s how Sovereign Gold Bonds compare with Gold ETF & Physical Gold.

Gold is a favourite investment for almost everyone in India. The precious yellow metal is considered auspicious. Plus, it can diversify your investments and safeguard against inflation. Are you planning your next investment in gold? You should think beyond jewellery and consider the sovereign gold bond (SGB).

What is a sovereign gold bond?

The Reserve Bank of India (RBI) issues the Sovereign Gold Bonds on behalf of the Government of India. The bonds are issued in various Tranches as notified by RBI from time to time. If you wish to buy bonds under this scheme, wait for the next tranche's official announcement.

Here’s what you need to know about the government’s gold bond scheme:

  • The bonds are available in multiple denominations based on grams of gold.
  • You can invest in 1 gram – 4 Kgs of gold.
  • For each tranche of sovereign gold bond, RBI fixes the price* on the Bonds.
  • The bonds mature in 8 years, early encashment/redemption of the bond is allowed after fifth year from the date of issue on coupon payment dates.
  • You can exit the bonds anytime post listing by selling them in the secondary market.
  • Your redemption price depends on the gold prices prevailing at the time.
  • When you buy a sovereign gold bond, the government pays 2.50% p.a. interest payable half-yearly on investment value.
  • SGBs attract ‘0’ Capital Gain tax** on redemption. However, interest** is taxed as per slab.

Other gold investment options

The sovereign gold bond can be the right choice for investment horizons of 5–8 years. However, consider your alternatives before investing. Here are two popular options:

Gold exchange-traded funds (ETFs)

Gold ETFs allow gold investments in dematerialised form. You can buy and sell them on the stock exchange. There is no lock-in period, and trading is based on the prevailing gold prices. So, you can pay attention to the actual market price when investing and never have to sell at discounted rates. Each ETF unit represents half a gram of 24-karat physical gold. That is insured and stored in a secure vault.

Physical gold

You can buy physical gold from jewellers in the form of jewellery, coins, or biscuits. Some banks sell gold coins as well. Physical gold is easy to buy with no purchase restrictions. However, you should always maintain the sales invoices for income tax purposes.

Sovereign gold bonds vs gold ETFs vs physical gold

How do sovereign gold bonds measure up against other types of gold investments? Let’s take a look:


Sovereign Gold Bonds

Physical Gold

Gold ETF

Fixed Interest

2.50% p.a. payable half-yearly

No Interest

No Interest

Capital Gain Tax

‘0’ Capital Gain tax on redemption^
Interest taxed as per slab

Short Term: Before 3 years, as per marginal slab
Long Term: After 3 years, 20% with indexation

Liquidity / Exit option

Can be traded on NSE/BSE** &
Redeemed from 5th year


Tradable on stock exchanges

Expenses / Cost

No charges in primary issues &
No annual expense

Making charges, Storage cost

Recurring annual expenses


Highest purity denoted
by IBJA as ‘999’

Remains questionable

High as it is Demat form



Risk of theft & wear/tear








The bottom-line

As you can see, sovereign gold bonds edge out physical gold and gold ETFs in terms of returns. Holding SGBs till maturity fetches higher and tax-free returns. Nevertheless, each product has its pros and cons. So, keep your financial needs and goals in mind while investing.

* Nominal value of the Bonds shall be fixed in Indian Rupees on the basis of simple average of closing price of gold of 999 purity published by the India Bullion and Jewellers Association Limited for the last three business days of the week preceding the subscription period. The issue price of the Gold Bonds will be Rs. 50 per gram less than the nominal value to those investors applying online and the payment against the application is paid through digital mode.

** Interest on the Bonds will be taxable as per the provisions of the Income-tax Act, 1961 (43 of 1961). TDS is not applicable on the bond. However, it is the responsibility of the bond holder to comply with the tax laws. The Capital gain tax arising on redemption of SGBs to an individual has been exempted if held till maturity. the indexation benefit will be provided to LTCG arising to any person on transfer of bonds.

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