Are Sovereign Gold Bonds a Better Option for Investment?

Are Sovereign Gold Bonds a Better Option for Investment?

In India Gold is often considered a good investment. You might have seen your mothers or grandmothers saving their gold jewelry for use in times of financial crisis. Yeah!! It is indeed a good investment option. But wait, Is gold jewelry or physical gold actually a good investment option? What if it gets bagged or robbed? There is actually a security threat to these golds and as far as gold jewelry is concerned you need to bear more charges other than just gold charges. Gold jewelry includes making charges too and after a few years when you actually need to sell it you get to know that it's not that pure and your investment gives a lesser return.

So, If you are considering just for investment, Gold jewelry is not a good option.

What are sovereign gold bonds?

Sovereign Gold Bonds or SGBs are just the government securities denominated in grams of gold issued by RBI. This scheme is a substitute for holding physical gold which has security risks and is taxable as well. Investors can either pay in cash which has a limit of 20,000 or pay online. You can issue SGBs either from banks, post offices, or the secondary market (Share market).

When can you buy Sovereign Gold Bonds?

Sovereign Gold Bonds are issued every year and there are fixed windows opened by the government for the sale of SGBs. One can subscribe for the SGBs during this and can receive the Bond Certification at the issuance date given for each window. These windows are referred to as series. Apart from these windows, you can also buy SGBs from the secondary market. Search for “SGB” in the stock market and you will see various SGBs for sale along with their maturity month and year. Buying from the secondary market is always a better option if we don’t have any subscription going on or if the price is lower in the secondary market.

Pricing Rules

SGBs are sold in units of gold per gram. 1 unit SGB is equivalent to 1 gram of gold, so the rate declared by the government is the average rate of gold in the last three working days. You can always check for the SGBs price in the secondary market, you never know you can get a better deal there. However, if you buy it online, the government provides a discount of 50 Rupees per gram on the registration price. 

Maturity Period

The maturity period for Sovereign Gold Bond is 8 years. The selling price is similar to that we discussed earlier, the average price of gold in the last three business days. If you wish, you can extend your SGB for 3 more years but not more than that. One SGB can be held for a maximum of 11 years. Apart from the maturity amount, RBI gives a simple interest of 2.5% which is credited half-yearly

Premature Selling Options

SGBs can be even redeemed after 5 years prematurely to RBI if required but this makes us bereft of some benefits which we will discuss later. 

You can also sell it before 5 years if your Sovereign Gold Bond is linked to your Demat account. Your bond will then be listed on the Stock Exchange and any investor can buy it. Linking your SGB with the Demat account can be done either at the time of subscription or after you open your Demat account in later years.  

Tax Benefits

The best part of holding a SGBs is that it is completely tax-free after the maturity period, though the interest earned per year on it is taxable according to your income tax slab. Investing in physical gold or digital gold does not provide you with this tax-free capital gain. So, it is always a better option to buy Sovereign Gold Bonds.


An investor can buy a minimum of 1 gram and a maximum of 4 kg worth of gold through Sovereign Gold Bonds. However, the upper bond for Trusts is 20 kg. Also, in a family, each family member can buy his/her own bonds and there is no limit for a family. Each member will have a limit of 4 kg each.

Risk Factor

The returns in SGBs are market-linked and will depend on the market performance and gold prices. Few factors on which gold price is related to are listed here:
  1. Demand and Supply 
  2. Inflation
  3. Inverse relation with Interest Rates
  4. International prices of gold
  5. Financial Crises

This article is for education purposes only. Please do your own research before purchasing it.