Gold BeES vs Sovereign Gold Bonds (SGBs) – What’s the Difference? 

7 min read • Published 12 January 2023
Written by Vaibhav Khandelwal

Historically, buying gold has been the most preferred way for Indians to invest their money. However, in recent times there has been a shift towards purchasing assets that mirror the returns of gold investments and have it as an underlying security or mirror the prevailing market price of gold. 

Among these options, Gold BeES and Sovereign Gold Bonds (SGBs) are the go-tos for most investors. If you are new to this market segment, you need to understand the pros and cons of both these investment vehicles. It will help you make the right choice and stay aligned with your investment goals. 

What Are Gold BeES?

Gold BeES are a type of Exchange Traded Fund that tracks the price of physical gold. It has physical gold as an underlying asset and a single unit of this fund is equal to 0.01 grams of gold (99.5% pure). 

Such schemes are listed on both Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) and you can buy units of these schemes just like regular stocks. When you invest in Gold BeES, you are purchasing gold in a paper or dematerialised form at its current market price. There is no physical gold involved in the transaction and upon redeeming your holdings, you receive the cash equivalent of gold’s current market value.  

It is a very transparent way of investing in gold that offers the flexibility of conducting transactions online. To invest, you simply need to connect to a brokerage platform and open a Demat and trading account. 

Gold BeES investments are suitable for those investors who want to expose their portfolio to gold but do not want the hassles of physically storing them.  

Advantages of Gold BeES Investments

Some of the benefits of investing in Gold BeES are as follows:

  • Gold BeES come with no lock-in period. Thus, you can sell them off at any time the market seems favourable. Moreover, due to this factor, this scheme is suitable for short, mid as well as long term investors. 
  • The market price of BeES is highly transparent and remains close to its underlying asset’s market value. 
  • These assets are free from the making charges and storage fees that usually come with buying physical gold. In addition, there are no entry or exit loads. 
  • You can offer your Gold BeES investments as collateral and obtain loans.

Disadvantages of Gold BeES Investments

Despite all these benefits, Gold BeES have some cons too. They are as follows:

  • There is no fixed rate of return as your profit or loss solely depends on the price movements of gold due to market fluctuations.
  • The absence of entry and exit loads may reduce expenses on the investor’s end; however, there are some charges like fund management charges, brokerage fees and administrative charges that you need to take into account. 
  • STCG and LTCG taxes are applicable on Gold BeES investments. However, the later comes with indexation benefits.  

What Are Sovereign Gold Bonds (SGBs)?

Sovereign Gold Bonds are a type of security that is issued by the Reserve Bank of India and is guaranteed by the Indian Government. They serve as an alternative to physical gold investments and are issued in 1-gram denominations. You can subscribe to a minimum of 1 gram and a maximum of four kilograms. 

Usually, SGBs are released in tranches and their sale occurs through mostly nationalised and some leading private banks. Their prices are fixed based on the closing market value of 999 purity gold in the last three business days of the week in which the subscription period ends.   

Advantages of SGB Investments

Here are some of the advantages of investing in Sovereign Gold Bonds:

  • SGBs are an excellent investment option for individuals with a long-term investment horizon of five to eight years.
  • They have a fixed return percentage of 2.5% that is disbursed semi-annually. At the end of 8 years, the last part of the interest is credited along with the maturity amount. 
  • There is a tax benefit for the redemption amount on Sovereign Gold Bonds. The interest earned is taxable; however, it is not applicable for TDS.
  • SGBs can be used as collateral for securing loans. Moreover, RBI’s ‘loan to value’ ratio in case of gold loans is also applicable in this regard.    

Disadvantages of SGB Investments

Some of the disadvantages of investing in Sovereign Gold Bonds are as follows:

  • SGBs have a lock-in period of 5 years, however you can sell in the secondary market. 
  • The redemption value of these bonds is set by The India Bullion and Jewellers Association Limited. They set it based on the prevailing market value of 999 purity gold on the last 3 business days before the redemption date. This can cause a marginal loss in the actual value of the gold you receive in comparison to the market price of gold on redemption. 

Difference Between Gold BeES and SGB

The main differences between Gold BeES and SGB are presented in the table below:

ParametersGold BeESSovereign Gold Bonds (SGBs)
Minimum Investment Quantity0.01 grams1 gram
Maximum Investment QuantityNo limit4 kgs for retail investors, 20 kgs for trusts, HUFs, and firms.
LiquidityGold ETFs are highly liquid as they can be traded on the stock exchange. Moreover, you can redeem them at any time. SGB cannot be redeemed before 5 years, and it has low liquidity in the secondary market, making it a less liquid asset than gold ETFs.
RiskWhile ETFs are backed by high-quality physical gold, there are risks related to the AMC managing that ETF.Sovereign gold bonds are issued by the RBI and backed by the government of India, which makes them less risky.
Sovereign GuaranteeNABacked by the Government of India.
In Gold ETFs, only return is appreciation in Gold Price.
In SGBs, apart from gold price appreciation, an additional 2,5% interest is also available.
TaxationCapital gains Taxable basis STCG or LTCG rate.Capital gains are exempted if redeemed with RBI. Interest is taxable according to your tax slab.

Gold ETFs vs SGB: Which one Should you Choose?

The most pertinent question here is gold ETFs vs. Sovereign gold bonds: which one is better? Both have their own merits and demerits in terms of cost, liquidity, and taxation.

If you want to invest for a long period, you should go with sovereign gold bonds, as they come with superior returns and favourable tax treatment. Moreover, the capital gains earned after the maturity period are exempt from any tax. However, if liquidity is your primary concern, investing in gold exchange-traded funds is better. You can sell it on the exchange and get your money whenever you need it.

Therefore, your decision to invest rests on your preferences and objectives.

Final Words

Both Gold BeES and SGB have their pros and cons. So, to determine what’s right for you, assess your investment objective, risk appetite and also prevailing market trends. This will help you make an informed choice. 

Frequently Asked Questions

Can I convert physical SGBs to dematerialised form?

Yes, it is possible to convert physical SGBs to demat form by submitting a dematerialisation request to the financial intermediary or issuing bank. 

Can I redeem SGBs before maturation?

Yes, you can withdraw from their SGB before maturity. However, it is only possible after 5 years from the date of issue or you have to sell in secondary market where prices might be at discount and taxation benefit not available. 

Is a Demat account mandatory for buying Gold BeES?

Yes, having a Demat and trading account are necessary for buying Gold BeES. This will help you buy and sell your holdings as per your requirement. 

Is GST applicable on Gold BeES?

No, there are no GST charges on Gold BeES investments.

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Vaibhav Khandelwal

Credit Principal
Vaibhav is Chartered Accountant by profession, having experience of 4+ years in banking & finance sector. Since past one year associated with Wint Wealth as Credit Principal. Previously worked with Northern Arc Capital for 2 years in FI-Credit Team and AU Small Finance Bank for 1 year in LAP-Credit Team.

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