Is it Worth Investing in Sovereign Gold Bonds

Introduced in 2015, Sovereign Gold Bonds or SGBs are a type of investment that allows individuals to invest in gold without having to physically possess the metal. The Reserve Bank of India (RBI) issues the Sovereign Gold Bonds, and it is backed by the Government of India.

SGBs are essentially government securities denominated in grams of gold. It acts as a substitute for investment in physical gold, while offering more benefits.

So, what exactly are the benefits of investing in Sovereign Gold Bonds? Let’s explore.

To know more about SGBs, read our previous blog here.

In this article, we will cover:

  • Quick Explainer on Sovereign Gold Bonds
  • Key Benefits of Investing in Sovereign Gold Bonds

To invest in Sovereign Gold Bonds with PL, click here.

Quick Explainer on Sovereign Gold Bonds

For investors looking to benefit from the movement in the prices of gold, Sovereign Gold Bonds are a good option to consider. In each financial year, the RBI issues the Sovereign Gold Bonds in multiple tranches. Each tranche has a specific open and close date for subscription.

Alongside, the issue price is also announced. To determine the issue price, a simple average of the closing price of gold (999 purity) published by the India Bullion and Jewellers Association Limited are considered. The time period used to arrive at this average is the last 3 business days of the week preceding the subscription period. The same process is followed to arrive at the redemption price.

It is important to note that the gold bonds are denominated in multiples of gram(s) of gold, with the basic unit of 1 gram. During the subscription period, investors can invest in these bonds and the redemption can be done after the maturity of the scheme.

As per guidelines, the tenor (i.e., duration) of the SGBs has been fixed at 8 years. However, investors have the option to redeem their investment after the 5th year. The redemption takes place at the prevailing gold price at the time of redemption.

 All individuals, HUFs, Trusts, Universities and Charitable Institutions are allowed to invest in SGBs. The minimum investment limit is 1 gm, while the maximum investment limit for Individuals and HUFs is 4 kg; and 20 kg for Trusts per financial year.

Coming to taxation, the interest on gold bonds will be taxable as per the investor’s tax bracket. Since TDS isn’t applicable on SGBs, investors need to show this income while filing the IT returns and pay the tax accordingly.

If the investor redeems his / her investment after the full tenor i.e., 8 years, capital gains tax will not be levied. Also, indexation benefits will be provided to long term capital gains arising to any person on transfer of the bond. Meanwhile, in case of early redemption, after the 5th year, the gains will be taxable.

To understand more on SGBs and whether they are the right fit for your portfolio, consult the qualified professionals at PL. The experts at PL provide research-backed, customised advisory and can help you manage your finances effectively. This personalised guidance will benefit you greatly in your wealth creation journey. Contact for more.

Key Benefits of Investing in Sovereign Gold Bonds

With the basics cleared, let’s understand the key benefits of investing in Sovereign Gold Bonds.

  • Assurance of purity: Bond prices are linked to the price of gold of 999 purity (24 carat) published by IBJA.
  • Sovereign guarantee: Investors also benefit from the Sovereign guarantee on the redemption amount and the interest amount. The risk of default is thus eliminated.
  • Cost-effective: Storage and security of physical gold incurs additional cost. In contrast, Sovereign Gold Bonds do not incur these costs. It is a hassle-free and cost-effective investment as the SGBs can be safely stored in the investor’s demat account.
  • Asset appreciation: When you redeem your investment on maturity, the units are redeemed at the prevailing gold price. So, you can benefit from the price appreciation if the gold prices have moved up.
  • Assured interest: By investing in SGBs, investors can get guaranteed 2.5% assured interest per annum. The interest is payable semi-annually on the nominal value. So, investors benefit from the potential appreciation in the gold price during the tenor of the scheme and also earn fixed interest income on their investment.
  • Diversification: Investing in SGB is a great way to diversify your portfolio and minimise risk as gold has low corelation with other asset classes.
  • Taxation: While purchasing physical gold, you need to pay GST. Whereas, SGBs are exempt from GST. This, coupled with the ease of storage and lower risk makes it a better investment than physical gold.
  • Capital Gains Tax Exemption: Sovereign Gold Bonds are exempted from capital gains tax if they are held till maturity. This is another advantage over physical gold, where investors have to pay capital gains tax if they sell it after three years.

To make things simpler for you, here’s a table comparing the various ways in which you can invest in gold. It clearly shows why Sovereign Gold Bonds, as also Gold ETFs and Mutual Funds are worth investing and what are the advantages they offer over Jewellery and Digital Gold.

Jewellery Digital Gold Gold ETFs / MFs SGBs
GST 3% 3% Not Applicable Not Applicable
Costs Making Charges (10-20%) Spread Cost, Insurance (3%) Expense Ratio (0.8%) No Costs
Liquidity Low High High Very Low
Extra Returns No No No Yes, 2.5% p.a.
Income Tax Capital Gains, Indexation Available Capital Gains, Indexation Available Slab Rate
Indexation Not Available
Exempt if held till maturity

All in all, Sovereign Gold Bonds are a tax-efficient way of investing and earning potentially higher returns in the long run. At the same time, it is advisable that investors should consider their own financial goals, risk appetite, investment horizon, and accordingly make an informed decision.

If you’re considering investing in gold, then take the time to explore your options and find the one that best fits your needs and goals. To invest in Sovereign Gold Bonds with PL, write to Visit for more details.

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