For centuries, Indian families have trusted physical gold. It is tangible, cultural, and simple. But from a purely financial perspective, physical gold (coins, bars, jewellery) has a major flaw: It sits idle. It generates no income while you hold it.
Enter Sovereign Gold Bonds (SGBs). Issued by the RBI on behalf of the Government, these bonds fix the flaws of physical gold. Not only does your money grow with gold prices, but you also earn a guaranteed 2.5% interest every year.
🏆 Gold ROI Simulator
Calculate the extra profit SGBs generate over 8 years.
Physical Gold Coin
₹1,59,384 After Capital Gains Tax*Sovereign Gold Bond
₹1,79,384 Tax-Free Maturity + InterestExtra Profit with SGB: ₹20,000
*Assuming 20% tax on gains for Physical Gold. SGB maturity is tax-free.
1. The 3 Massive Advantages of SGBs
A. The 2.5% Interest Kicker
This is the killer feature. If you buy ₹1 Lakh worth of SGBs, the government pays you ₹2,500 every year directly into your bank account. This is over and above the gold price appreciation. Physical gold pays you zero interest.
B. Tax-Free Maturity
If you hold physical gold and sell it at a profit, you have to pay Capital Gains Tax. However, SGBs are exempt from Capital Gains Tax if held until maturity (8 years). The entire profit you make from gold price rising is 100% yours.
C. No Making Charges or Purity Risks
When you buy a jewellery or coin, you pay 5-20% as "Making Charges". When you sell, that money is gone. With SGBs, there are zero making charges. You buy and sell at the pure market rate of 999 purity gold.
2. Comparison Table: SGB vs Physical vs ETF
| Feature | SGB | Physical Gold | Gold ETF |
|---|---|---|---|
| Annual Interest | ✔ 2.5% | ✘ Nil | ✘ Nil |
| Capital Gains Tax | ✔ Tax Free* | ✘ Taxable | ✘ Taxable |
| Making Charges | ✔ Zero | ✘ High | ✔ Low |
| Liquidity | Low (5-8 Years) | High (Instant) | High (Instant) |
*Tax free only if held till maturity. If sold on exchange before maturity, LTCG applies.
3. Who should NOT buy SGBs?
Despite the benefits, SGBs are not for everyone. You should avoid them if:
- You need gold for a wedding soon: SGBs are paper gold. You cannot walk into a shop and exchange bond certificates for a necklace instantly without selling them first.
- You need high liquidity: While you can sell SGBs on the stock exchange (NSE/BSE), the trading volume is often low, and you might have to sell at a discount to the actual gold price if you are in a hurry.
4. How to Buy?
The RBI opens "subscription windows" periodically where you can buy directly. However, you can also buy listed SGBs anytime from the secondary market through your broker (Zerodha/Groww) just like a stock.