SGB investment is better than investing in physical gold. Here’s why
Finance, Investing, Investment

SGB investment is better than investing in physical gold. Here’s why

We Indians are very sentimental when it comes to investment. When we think about investing our money- there are two products very popular among the Indian population- Gold and bank fixed deposit. Gold, apart from financial value- holds high sentimental value as well in India.

Gold investment is considered the most auspicious investment in our country and holding physical gold has its pros and cons, including risk and cost. Therefore, the Government of India has introduced Sovereign Gold Bond scheme (SGB). In simple terms, SGB is the debt securities denominated in grams of gold.

SGB is issued by the RBI on behalf of the Indian government. Sovereign gold bond investment offers 2.50% fixed interest per year to the investors- One of the biggest reasons to invest in SGB. SGB makes a good substitute for physical gold for different reasons. If you invest in SGB, then you will own the gold in the form of a certificate (bond).

Sovereign gold bond was introduced in November 2015. The tenure of the gold bond is 8 years, the minimum investment is one gram, and a maximum of 4 Kg for the individual and Hindu Undivided Family (HUF), for trust and similar organizations, the maximum investment is 20Kgs.

Key SGB features that are different than physical gold investment:

·         Residents of India are eligible to invest in SGB.. Guardians can invest in SGB on behalf of minors.

·         Gold bonds weighing units are the same as physical gold. One unit is equal to one gram.

·         The minimum investment in SGB is one gram and the maximum is 4Kgs per investor. For similar institutions, 20 Kg gold is the limit.

·         SGB investment maturity period is 8 years; lock-in period is 5 years- mandatory.

·         The SGB interest rate is 2.50% annually. Interest is paid twice in a year on the value of the SGB investment. The returns are calculated by using the current gold price.

·         The interest on the SGB is taxable according to the Income Tax Act 1961. There are no capital gain taxes on redemption and the long-term capital gains have indexation benefits.

·         On behalf of the Government of India, RBI issues the Sovereign gold bonds according to the GS Act 2006. The holding certificate of the gold investment will be provided to the investors, which if want, the investor can convert into Demat form.

·         SGB can also be held jointly- though the limit on the investment is applied to the first holder.

·         While buying physical gold KYC norms are to be followed and the same norms are applicable while investing in SGB.

·         It’s easy to trade on the stock exchange.

·         While applying for the loan, banks accept SGB as the collateral.

Why is investing in Sovereign Gold Bonds better than Physical gold?

Not one, we will give you four major reasons why should you invest in SGB instead of physical gold:

·         Get the Same Amount of Gold for a Less Expensive Price

The IBJA (Indian Bullion and Jewellers Association) sets and regulates the price of gold, which is normally the same for everyone. However, in addition to the gold price, you must pay hefty making charges when purchasing actual gold. When you buy a sovereign gold bond, there is no aspect of making charges involved. As a result, the total cost of an SGB is lower than the cost of actual gold jewelry.

·         Over and beyond the non-taxable appreciating gold price, earn fixed interest.

When you buy physical gold, you only make money if the value of the gold rises. With an SGB, this is not the case. You gain money here in two ways: the first is through the appreciation of gold, and the second is through the interest rate you receive on SGBs. On Maturity, you will receive tax-free appreciated gold money as well as non-cumulative interest. The non-cumulative interest component is the only part that is taxable.

·         Get Rid of Your Gold Storage Problems

The safe storage of your gold is solely your responsibility. At numerous financial organizations, individuals pay for lockers or private safes. You don’t have to worry about keeping an SGB safe because it’s a paper document. If you lose your SGB paperwork, all you have to do is contact RBI and ask for a copy.

·         You will be given a Sovereign Guarantee.

SGBs come with a sovereign guarantee on interest and principal payments because RBI issues them on behalf of the Indian government. Simply put, the government guarantees that you will receive your dues on maturity without delay. An SGB is one of the safest methods to invest due to the government guarantee.

Who should consider investing in SGBs (Sovereign Gold Bond Schemes)?

These bonds are suitable for investors that like gold as an asset. These bonds are low-risk investment solutions that are appropriate for people who have a low-risk tolerance. Interest payouts on SGB bonds provide a fixed income twice a year. The cost of purchasing and selling bonds is lower than that of actual gold.

Investing in SGBs also eliminates the complexity to store physical gold. Individuals who do not want to deal with such a nuisance might therefore invest in them. Because the bonds are held in both a Demat account and a paper form, there is no risk of theft. A gold bond is an excellent long-term investment option for those seeking high returns.


Gold is a social and emotional asset with a high social and emotional worth, particularly in India. It is the most coveted asset that one would like to own. In India, every auspicious occasion is marked with the acquisition of gold. Physical gold, on the other hand, comes with its own set of hazards and prices. With the rise in gold prices, there is a greater risk of theft and higher storage costs. As a result, gold bonds will be a good alternative to owning real gold. They are issued in the form of certificates, which almost eliminates the danger of investing in them. They are a particularly appealing investment option because they have a set interest rate and no capital gains tax on redemption at maturity.

Gold also serves as a deflationary and currency risk buffer. Additionally, investors do not need to invest a large sum of money to obtain SGBs because the minimum investment is one gram. Furthermore, gold is a distinct asset class from both equities and debt assets. As a result, investing in SGBs can help diversify your financial portfolio. Investors should consider investing in them to diversify the risk in their portfolios.

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