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How Do Sovereign Gold Bonds Score Over Physical Gold?

Personal Finance

Gold is a valuable asset. It adds value to a portfolio. It also helps to diversify it. Economic experts suggest that at least 10%–20% of a portfolio’s assets should be invested in gold. The primary reason is that gold is a good guard against inflation and currency risk. Buying gold coins, gold bars, or even sovereign gold bonds and gold ETFs (exchange-traded funds) are all ways to invest in gold.

This article discusses how sovereign gold bonds compare to actual gold.

What Exactly Are Sovereign Gold Bonds?

Sovereign gold bonds are government securities issued by the RBI on the government’s behalf. They are priced in gold, with one gram of gold being one unit. These bank loans pay a set rate of return on investment. Also, they may be sold in the secondary market to profit from capital gains.

Individuals and HUF (Hindu United Family) may invest as little as one gram and as much as four kilograms in these bonds. Yet, the maximum restriction for trusts and companies is 20 kg, as the government regularly determines. The sovereign gold bond scheme might be held separately or jointly. The limit also applies to the first bidder in the event of a joint application.

SGBs may be applied for at the banks, scheduled private and foreign banks, Stock Holding Corporation of India Ltd. (SHCIL), authorized stock exchanges, and specified post offices. These bonds can also be purchased online through the websites of well-known financial institutions. Sovereign gold bonds are kept on certificates. As a result, there is no chance of theft or extra storage costs.

Perks of Investing in SGB Versus Actual Gold 

  • Storage Fees 

Physical gold buyers must spend money on things like renting lockers and buying insurance. This is to keep their gold secure and recoup losses from theft, burglary, or other incidents. In the case of SGB, however, the gold is stored securely in the custody of the Government of India. No fees are charged to the investors. 

  • SGBs Provide Better Returns 

Real gold is accessible at current market values. But SGBs pay the value of gold plus interest. SGBs receive a basic interest rate of 2.5 percent per year. This is paid semi-annually. The interest is taxable in the hands of the buyers.

Also, when you sell real gold, the dealer normally deducts the production fee. This does not apply to the sovereign gold bond scheme. Making costs may vary from 5% to 10%, based on where you acquire your actual gold and in what form. Jewelry, for example, has a greater price than bars of gold or coins.

  • Goods and Services Tax (GST)

In the case of investing in jewelry, investors must pay GST and making costs. But there is no GST in the case of investing in sovereign gold bonds.

  • There is no problem with storage or theft.

Storage is one of the key obstacles that limit investments in real gold. You must either keep actual gold in your house or in an official locker supplied by banks. Also, actual gold is more vulnerable to theft or loss.

When purchasing gold in SGBs, you won’t have to worry about such concerns since the RBI is in charge of storage. Also, when you redeem the bonds, you get cash.

  • Gold Purity Is Guaranteed 

You don’t have to worry about gold’s purity. This is because the RBI issues SGBs on the government’s behalf. It has often been noticed that when selling real gold purchased from a jeweler or store, the purity of the metal is becoming an issue. Few jewelers and dealers guarantee the purity and grade of gold when they sell it.

  • Guaranteed interest 

Unlike when storing actual gold, SGB buyers do not need to pay any money to secure the safety of their gold. They also get a fixed interest rate of 2.5 percent per year, paid on a semi-annual basis.

  • Capital Gains Tax 

Unlike real gold, where buyers must pay capital gains tax on the sale of gold or gold jewelry, SGB investors do not have to pay any tax on maturity gains.

Who can Purchase SGB?

Sovereign gold bond investments are available to Indians, including Hindu Undivided Families (HUFs), individuals, institutions, charities, and trusts. The founder of a Sovereign Gold Bond is also permitted. Real gold lacks well-defined ownership papers. So purchasing SGBs jointly is more appealing than buying actual gold.

Where Can You Purchase SGB?

Sovereign gold bond investments are as easy to obtain and purchase as physical gold. This is because their form is available from issuing bank offices, National Stock Exchange of India Ltd., and Bombay Stock Exchange Ltd. designated post offices directly or through agents.

The form is also accessible on the RBI’s website, as well as on the web page of the issuing bank. The bond may also be donated or transferred to someone who meets the qualifying conditions mentioned above. SGB payments may be made in cash (up to Rs. 20,000), cheques, demand drafts, or electronic funds transfers.

How Do You Redeem SGB?

The investor is notified one month before the bond’s maturity date, and the sovereign gold bonds may be redeemed. The redemption amount will be given to you in INR. The India Bullion & Jewelers Association Limited has declared that the redemption price would be based on the simple average of the closing price of gold of “999 purity” over the previous three working days.

The interest and redemption amount will be deposited into your bank account. (This is the account you provided at the time you bought the bond.) If the investor’s bank account or contact details have changed, the investor should notify the bank, SHCIL, or post office ahead of time.


Gold is the most viewed asset, with both social and emotional worth. It has long been a popular asset in India. Buying gold has shifted radically as the times have changed. Buying gold coins and gold items is not the only choice. The Indian government has issued digital gold certificates or mutual funds that may be stored in a demat account.

Buying sovereign gold bonds reduces the need to worry about theft, storage costs, or even gold purity. Sovereign gold bonds have a five-year lock-in period and mature after eight years. As a result, before investing, one must analyze both options in terms of liquidity, and storage, among other things.

Also, compared to other assets, gold is more stable amid market instability. It serves as a buffer against this risk. It stabilizes the value of a buyer’s portfolio.

To learn more about sovereign gold bond investment, visit Piramal Finance for related blogs and to explore their products and services.