Sovereign Gold Bond – Why Is It A Better Option than Physical Gold Investment? 

Sovereign Gold Bond

In India, for a very long time now, investing in physical gold is a practice that is followed. In fact, in many states in India, it is hard to see marriages without gold ornaments worn by brides. When investing in gold is considered auspicious physical gold comes in handy. But, for those interested in choosing gold as an investment for the future, sovereign gold bonds come in handy. What are they and how are they the best option compared to physical gold? Let us find out here:

Meaning of Sovereign Gold Bond

Sovereign Gold Bond shortly referred to as Sovereign Gold Bond is a gold bond. The Reserve Bank of India issues this bond as a representative of the Government of India. The good thing about this bond is that gold in this bond is sold on a per-unit basis similar to physical gold. Above all, the value of these bonds is derived from the underlying value of one gram of physical gold. Particularly, the value of physical gold with 999-purity is considered for deciding the price of one unit of a sovereign gold bond. 

The actual cost of the bond is calculated by taking an average of the closing prices of physical gold for the past three working days. But, from where does RBI arrives at the closing prices. These are prices that the Indian Bullion and Jeweler’s Association Limited publish every day. Even, the redemption value is arrived at on the latest base data from this source.

Is It Easy To Buy Sovereign Gold Bonds?

You can easily buy sovereign gold bonds. Also, you can keep them deposited for 8 years at an interest rate of 2.5% per annum. You will get the interest credited to your associated bank account on a half-yearly basis. There is a restriction of buying 4 kgs of gold bonds per year for a person. In the case of a trust, this restriction is 20 kgs per year. Are you wondering about any mandatory documents needed for SGP purchase? All you need is only a PAN card. Without your PAN card copy, you cannot buy these bonds.

Benefits of Investing in Sovereign Gold Bond:

Here are the benefits you can expect from this investment:

  • Assured safety, which is not possible in physical gold
  • An additional source of income as you can get the interest credited to your bank account
  • You can gain an edge against inflation as the value of your bonds will increase similar to the physical gold cost.
  • You can buy these bonds easily online
  • You can get indexation benefit if you wish to transfer the bond before the maturity
  • You can easily trade these bonds on stock exchanges
  • Sovereign Gold Bonds are accepted as collaterals for loans by banks

So, as compared to physical gold, sovereign gold bonds carry many benefits to investors. But, it is better to go through a comparative study of Sovereign Gold Bond and physical gold. In turn, you can arrive at an informed decision that the former is better than the latter:

Comparing Sovereign Gold Bond and Physical Gold:

Criteria  Sovereign Gold Bond Physical Gold
Meaning These are government securities with dependable 999-purity Gold ornaments can be made only when copper is mixed. So, you cannot ensure the utmost purity of physical gold
Rate The issue rate is decided by the government The rate keeps changing every day
Lock-in period 5 years lock-in period There is no lock-in period. You can buy and sell anytime.
Investment You can buy gold bonds in units. One unit is equivalent to one gram of gold. You have a restriction on the utmost grams you can buy. An individual cannot buy more than 4 kgs of gold per year. If you are particular about buying physical gold, you can buy coins and biscuits available in 10 grams denominations. So, you will have to spend more to buy even a single coin or biscuit.
Taxation Capital gain on redemption is zero in Sovereign Gold Bond. Even, long-term capital gains come with indexation benefits. Nevertheless, the capital gains on premature redemption are taxable at the same percentage as physical gold The capital gains from your investment in physical gold held for less than three years are taxable based on your tax slab. For an investment held for more than three years, you will be taxed at 20% with indexation benefits.
Liquidity It is not liquid as you can trade your Sovereign Gold Bond in stock exchanges only after 5 years of the lock-in period. You can buy physical gold from any jeweler or even from banks these days. You can even exchange through the same jeweler or a different jeweler at any time without any lock-in period.
Demat Account Not compulsory. Nevertheless, you have the option to hold your Sovereign Gold Bond units in a Demat account. Not required


In short, if you are looking for liquidity, buying physical gold will be a good idea. Nevertheless, if you are fine with the lock-in period and look for the best returns, Sovereign Gold Bonds can the right choice!