Invest in SGBs rather than Gold - Make gold shine brighter with SGBs

  • Posted By :
  • Monday Sep 17, 2018

Gold is considered an auspicious commodity and has consistently offered financial security, since ages. Today, you can invest in gold without having to purchase physical units, making the purchase of gold more comfortable and convenient. In the Union Budget of 2015-16, the Government initiated the launch of Sovereign Gold Bonds (SGBs). But before you compare SGB with different gold investment options, let us understand the significance of gold bonds.

What is the Sovereign Gold Bond Scheme?

SGBs are government securities denominated in grams of gold, issued by the Reserve Bank of India. SGBs can be bought from offices or branches of Nationalised Banks, Scheduled Private Banks, Scheduled Foreign Banks, designated Post Offices, Stock Holding Corporation of India Ltd. (SHCIL) and authorised stock exchanges either directly or through their agents. The value of one bond represents that of one gram of gold, and can be held in a buyer’s Demat account. Demat account. Under SGB, your investment value can range from one gram to four kilograms of gold (in a given financial year). You can also invest up to four kilograms in the names of each eligible member of your family. These bonds are transferable and thus can be gifted.


How to buy SGB's online?

You can apply for SGBs online through the website of listed, scheduled commercial banks. You will receive less than normal value through online application and payment, almost Rs. 50 less per gram than the normal value paid otherwise. The KYC process of buying SGBs is similar to that of buying physical gold. You may not need to submit separate KYC. 

At, you can apply online for SGB online:

  1. Login > More Products > Sovereign Gold Bonds > Click on Buy > IPO/SGB/ETF/NCD > SGB/ETF Name > Select the required SGB from drop down
  2. Enter “Quantity” in grams and click on “Calculate” button > Then click on “Confirm” button
  3. Tick on the “I have read & understood the Terms & Conditions and agree to abide by them” check box and then click on “Confirm“ button

What are the returns on SGB's?

These bonds bear an interest rate of 2.50 per cent, (fixed rate) per annum. When you invest in SGBs, you receive interest on a semi-annual basis in your bank account and the final interest becomes payable on maturity along with the principal.

There is an eight-year maturity period on SGBs, after which the returns become tax-free. Partial withdrawals become available from the fifth year of investment. However, Short Term Capital Gains (STCG) tax is applicable if SGBs are withdrawn before maturity. In these investments, you stand to benefit from capital gains through the appreciation of gold prices as well as through additional interest earnings.

Comparing SGBs with Gold Funds and Physical Gold:

   Physical Gold Gold Fund  SGB 
Investing  You pay the current market price of gold. Additional expense involves cost of bank lockers for its safety. You can buy Demat gold for a fraction of the price of physical gold. The value of one bond represents that of one gram of gold.
 Maturity period Buy and sell anytime Buy and sell anytime Can sell only after 8 years
 Lock-in No lock-in No lock-in 5 years lock-in period
 Returns Price of gold at the time of selling, minus making-charges "The gold fund category has returned an average return of over 15% over the last one year." - Value Research Earn capital gains through appreciation in gold prices as well as additional interest earnings.
 Risks Theft, flat prices, purity concerns Market risk Liquidity risk
 Taxes 1% Wealth Tax is charged on the total valuation of the asset  LTCG tax 20% with indexation after 3 years holding and at slab rate before 3 years Capital gains arising from SGBs are exempted from tax.
 Can be used for taking Loans Yes No   Yes

Unlike gold funds, SGBs can be used as collateral while applying for loans, thus making it an attractive, alternative approach to gold funds. Additionally, with comparatively higher returns, low-risk and hassle-free investing, SGBs are a more substantial investment than physical gold.

Related Articles

Invest in our products customised for your needs.