Sovereign Gold Bond (SGB)
Sovereign Gold Bonds (SGB) are government securities issued by the Reserve Bank of India on behalf of the Government of India, denominated in grams of gold, paying a fixed 2.5% annual interest plus capital appreciation linked to gold prices.
Understanding Sovereign Gold Bond (SGB)
SGBs were introduced in 2015 as an alternative to physical gold — eliminating storage, purity, and making-charge concerns. Each unit represents 1 gram of 999-purity gold. The 2.5% annual interest is paid on the issue price (not the prevailing gold price), so on a ₹6,000/gram issue, you earn ₹150/gram/year regardless of where gold prices move.
SGBs are listed on BSE/NSE and can be sold any time after 5 years (the lock-in). Sale on exchange before maturity is taxed as a capital gain (LTCG at 12.5% if held over 12 months as of Budget 2024). Holding to maturity makes the capital gain entirely tax-free for individuals.
Why it matters
For Indian investors who treat gold as a long-term portfolio diversifier, SGB is the most tax-efficient way to own it. Compared to physical gold (no interest, GST, locker fees), gold ETFs (no interest, expense ratio, capital gains taxed), and digital gold (no interest, GST, storage fees), SGBs offer the unique combination of 2.5% interest + tax-free LTCG at maturity.
Example
You buy 50g of SGB at ₹6,000/g (₹3 lakh). Over 8 years, gold appreciates to ₹9,000/g. You receive 2.5% × ₹3 lakh = ₹7,500 every year (₹60,000 total interest). At maturity, you receive ₹4.5 lakh — entire ₹1.5 lakh capital gain is tax-free. Total return: ₹2.1 lakh on ₹3 lakh, completely tax-free, over 8 years.
You buy 50g of SGB at ₹6,000/g (₹3 lakh). Over 8 years, gold appreciates to ₹9,000/g. You receive 2.5% × ₹3 lakh = ₹7,500 every year (₹60,000 total interest). At maturity, you receive ₹4.5 lakh — entire ₹1.5 lakh capital gain is tax-free. Total return: ₹2.1 lakh on ₹3 lakh, completely tax-free, over 8 years.