Features and Benefits of Sovereign Gold Bonds

A bond is a loan issued either by a company, a government or an institution in return for periodic cash payments. These bonds are tradable in financial markets. One of the bonds a government issue is a sovereign gold bond. The government regularly issues these bonds in line with the annual borrowing programme. For the lender, it is an alternative to investment in physical gold with gold-based returns guaranteed by the government. 

In India, sovereign gold bonds are issued by its Reserve Bank on behalf of the government. The bonds are denominated in grams of gold. Like a common bond, the lender receives periodic payments of cash in the form of interest until the bond’s maturity.  

Features of Sovereign Gold Bonds 

  • Pricing

The government fixes the price of the bond in Indian rupees. The price is based on the simple average of closing prices of gold of 999 purity. They take the simple average of prices for the last three business days of the week before the subscription period of the bond. To make the investment in the bond more enticing, the government issues the bonds at Rs.50 per gram less than the nominal value.

  • Minimum and maximum limits in investment 

The bonds are denominated in grams of gold. A lender can buy a minimum of 1 gram worth sovereign gold bond and go up to purchasing a maximum of gold bonds worth 4 kgs of gold.

  • Ownership

Like details of shares traded are held in a demat account. Sovereign gold bonds are held securely in a demat account.

  • Interest

The government will pay the investor an interest rate of 2.5% twice a year. The last payment of interest will be on the maturity of the bond along with the principal.

  • Maturity

Sovereign gold bonds mature in 8 years. You can opt for an early redemption of these bonds after the fifth year from the issue date. Early redemption can be done on the date the interest is paid.

  • Redemption

Like how the issue price of bonds is fixed using a simple average, the redemption price is also set the same way. The lender can trade the bonds, in the secondary market, at a price equivalent to the closing prices of gold of 999 purity. The standard for the last three business days of the week from the date of repayment is taken. The maturity proceeds will be credited to the investor’s bank account.

  • Transferability

The sovereign gold bonds can be transferable to the investor’s relative or friend before the maturity period by an instrument of transfer.

  • Taxation

To lure investors in sovereign gold bonds, gains arising when an investor completes the maturity period of 8 years is not taxable. But if an investor exits upon the completion of 3 years, the profits arising would be charged at 20% with indexation benefit. If the investor exits before three years, the gains are taxed at a marginal tax rate under which an investor falls.

Icici direct offers an intelligent way to invest in gold via sovereign gold bonds. These bonds help in capital appreciation and a chance to receive fixed income via interest.

Benefits of a sovereign gold fund

  • Assured returns guaranteed by the government 
  • Fixed interest payment twice a year
  • There is an option to exit early
  • No taxation when bonds are redeemed after maturity.
  • Issue price of the bond is Rs.50 less than nominal value
  • Bonds are easily transferable
  • Ownership is via certificates in demat account, no risk involved in physically holding gold
  • Can be traded in the stock exchange
  • Sovereign gold bonds can be used as collateral for loans from banks, financial Institutions and Non-Banking Financial Companies


Even though investing in sovereign gold bonds has several benefits, there may be a risk of capital loss arising from it. If the market price of gold falls on maturity, the investor will face a loss on redemption.  


Is sovereign gold Bond better than gold?

Sovereign Gold Bonds (SGBs) have advantages over physical gold. They offer an interest rate, tax benefits on capital gains, and eliminate the hassles of storage and security associated with physical gold. However, whether SGBs are better than physical gold depends on your investment goals. If you want to hold gold as jewelry or in a tangible form, physical gold may be more suitable. If you want to invest with potential interest income and tax benefits, SGBs could be a better choice.

Which is better, gold ETF or sovereign gold Bond?

Gold ETFs (Exchange-Traded Funds) and SGBs serve different purposes. Gold ETFs represent ownership in physical gold and are traded on stock exchanges like stocks. SGBs are government-backed bonds that offer an interest rate and tax benefits. The choice depends on your investment goals. If you want to trade gold on the stock exchange, gold ETFs are suitable. If you want to invest for the long term with interest income, SGBs might be better.

Is sovereign gold bond better than a mutual fund?

Sovereign Gold Bonds and gold mutual funds serve different purposes. SGBs are government-issued bonds backed by physical gold, while gold mutual funds pool investors’ money to invest in various gold-related assets. The choice depends on your investment objectives. If you want a low-risk investment with interest income, SGBs are a better choice. If you prefer diversification and professional management, a gold mutual fund might be more suitable.

Is sovereign gold bond a good investment?

Sovereign Gold Bonds can be a good investment for those who want to invest in gold and benefit from the interest income and potential capital gains with tax benefits. However, like any investment, its suitability depends on your financial goals, risk tolerance, and investment horizon. If you’re looking for a low-risk, government-backed investment in gold and don’t mind a longer lock-in period, SGBs can be a good choice. It’s essential to consult a financial advisor and assess your individual financial situation before making any investment.