Advantages and Disadvantages of Sovereign Gold Bond (SGB) Investment

Save & Invest

Gold is a great asset. It not just adds worth to a sovereign gold bond investment account but also helps expand it. 

Financial experts advise that at least 10%-20% of an investment portfolio’s assets be invested in gold. The key reason is that gold is a great buffer against currency and inflation risk. Buying gold bars, gold coins, or even Sovereign Gold Bonds & Gold ETFs are all ways to invest in gold. All of these have benefits & drawbacks. This blog goes into great depth on sovereign gold bond investments.

What exactly is a Sovereign Gold Bond?

Sovereign gold bonds (SGBs) are federal assets issued by the RBI on the government’s behalf. They are priced in gold, with one gram of gold indicating one unit. These debt methods pay a set rate of return on investment. You may sell them in the resale market and profit from capital gains.

You may invest as little as one gram and as much as 4 kilos in these bonds. Yet, the maximum limit for trusts and firms is 20 kgs, as determined by the government at any given time. Sovereign gold bond investments can be held singly or jointly. The limits also pertain to the first bidder in the event of a joint request.

You may apply for a sovereign gold bond investment at nationalised banks, listed private and global banks, authorised stock markets, Stock Holding Corporation of India Ltd., and specified post offices. These bonds may also be applied online via the websites of known commercial institutions. 

SGBs are stored in the form of certificates and may also be disintegrated. As a result, there is no chance of theft or extra storage costs.

The Benefits of Sovereign Gold Bond Investments

The following are some of the benefits of Sovereign Gold Bonds:

  • Safe

Gold bonds are a secure method to invest in gold since the Indian government supports them. Also, since it is a computer or paper-based method of investing in gold. Hence, it doesn’t involve the risks linked with classic gold ornaments.

  • Returns

In most contexts, the government issues gold bonds at a discount to the average market value of gold. The cost of pure gold is the yield of sovereign gold. As a result, once the bonds mature, you will get cash equal to the present gold price. 

You will also get a set yearly rate of interest of 2.5% just on bonds, paid semi-annually. It is vital to recall that this rate will be set by the contract price rather than the actual gold price. Also, unlike gold ETFs and gold funds, SGBs do not have an annual fee.

  • Allocation of Assets

Sovereign gold bonds can assist with asset allotment in your investment portfolio. 

  • Low Initial Investment

Investment in SGB is a low-cost way to get into gold. You must invest a minimum of one gram of gold in the sovereign gold bond scheme.

  • Tax-efficient

If you pay your bonds beyond maturity, that is, after 8 years, there is no capital gains tax. Yet, indexation gains are available if you exchange after the 5th year.

Drawbacks of Sovereign Gold Bond Investments

Gold bonds, like all other investment options, have some drawbacks.

  • Long Maturation Time

Many of you may be put off by gold bonds’ eight-year maturity duration. Although the maturity term is lengthy, it might assist you in avoiding uncertainty in the price of gold.

  • Only Available in Tiers

Unlike other investment choices, you cannot buy sovereign gold bonds at any time. You may readily deal in sovereign gold bonds from the main market during a set time on the RBI’s calendar.

  • Capital Loss

Since the bond’s worth is closely linked to the price of gold on global markets, investing in SGB can result in a monetary loss on your original investment if the gold price falls to the price of gold at which you got the bond. Yet, gold is a valuable asset, and the Indian government is focused on keeping its cost stable. Furthermore, the odds of having a capital loss are small if you hold until maturity. Nonetheless, the danger of capital loss can’t be ruled out.

Who Should Consider Investing in SGBs?

Sovereign gold bond investments are a good option if you wish to expand your portfolio with gold exposure. This is a low-risk investment. It also gives a semi-annual fixed income. 

You do not have to spend a lot of money on this asset. The cost of purchasing/selling SGBs is inexpensive as compared to actual gold. If you do not want to deal with storing actual gold, you may choose this kind of investment, which you can hold in Demat form.

Is Now a Good Time to Invest in the Sovereign Gold Bond Scheme?

As the government sells sovereign gold bonds, they are low-risk investments. Therefore, those with a long investment view might consider investing in such bonds since gold prices are projected to rise in the long run. When the price of gold falls, it is the greatest time to trade in sovereign gold bond investment.

Why Should You Consider Investing in SGBs?

The following are some of the primary reasons to invest in gold bonds:

  • These bonds may be used as collateral for loans.
  • Sovereign gold bond investments have an annual rate of interest of 2.5% based on the issuance price.
  • Payment for these bonds may be done in cash. It is permitted up to a limit of Rs. 20,000. You may also make the payment via demand draft, check, or e-banking.
  • As gold bonds are sold as Government of India stock, they provide security.
  • After the specified time, generally 5 years from the date of investment, you may trade them on a stock market.


Sovereign gold bond investments enable you to avoid buying actual gold and suffering storage costs. They also allow you to benefit from price variations in real gold without purchasing and holding the gold for the upcoming sale. 

If you want to learn more about sovereign gold bond schemes, visit the Piramal Finance website and explore their products and services.