Should I Invest in SGBs or Digital Gold?

8 min read • Updated 30 June 2023
Written by Vaibhav Khandelwal

Gold in India is considered auspicious, as it is bought on auspicious occasions as an investment. With everything going digital, gold has also entered the e-market, one can buy and sell gold on digital platforms without physically owning it. Sovereign Gold Bonds (SGBs) and Digital gold are for those investors who look for diversification across assets and are willing to participate in the potential of gold as an asset class through digital means more simply and cost-effectively.

In this article, you will understand all about SGBs and Digital Gold and whether those are good investments to have in the portfolio or not.

 What are SGBs and Digital Bonds?

1. SGBs:

  • It stands for Sovereign Gold Bonds (SGBs).
  • Investors can buy bonds through the SGB scheme by paying the issue price of the bond in the form of cash (up to Rs 20,000), cheque, online payment, or Demand Draft or in secondary market
  • They are nothing but substitutes for physical gold which is denominated in grams.
  • It comes with a sovereign guarantee and is listed on the stock exchanges.
  • Investors in these bonds have the option of holding them in physical or dematerialized form. Investors can buy these bonds through authorized SEBI  brokers, or through banks.
  • Investors also get 2.5% p.a. Interest on the face value of the bond, payable semi-annually.
  • SGBs are issued for a tenure of 8 years which can be pre-mature with RBI after 5 years (On every interest payment dates) or it can be sold in the secondary market.

2. Digital Gold:

  • Digital Gold on the other hand is nothing but buying gold through an online channel and holding it virtually by making payment of an equivalent amount as that of the price of physical gold.
  • One can purchase and sell Digital gold anytime from the open market. Also, there is no lock-in period for holding digital gold.
  • Investors can buy digital gold at any time by making an online payment.
  • It has no transaction fee (however gold price offered is higher) and one can do instant fund transfers upon selling the gold however GST is applicable which is not the case in SGB.
  • These are backed by physical gold and investors can take physical delivery of gold with applicable charges.

Issuing Agency

In the case of SGBs, 

  • Reverse Bank of India on behalf of the Central Government came up with the Sovereign Gold Bond Scheme.
  • The bonds are sold through banks, designated post offices, the Stock Holding Corporation of India (SHCIL), and recognized stock exchanges – National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

On the other hand, in the case of a Digital Gold

  • In India, digital gold is primarily sold by three entities—MMTC PAMP, Augmont Goldtech, and Digital Gold India (SafeGold).
  • These firms have tied up with service providers like Paytm, Google Pay, Amazon Pay, and PhonePe, among others, to sell digital gold via their platforms.
  • Digital gold is not regulated in India.

Who should invest?

SGB Investment, 

  • Investors who wish to invest in gold with a long term view.
  • Because these bonds pay interest at the rate of 2.5 percent per year, which is payable on a half-yearly basis and it has a tenure of 8 years with an exit option available after 5th year on interest payment dates., investors who want to invest for the long term and aim for a fixed return on investments can go for SGBs.
  • Only those Investors who are Indian residents including individuals, Hindu Undivided Families, Trusts, Universities, and Charitable Institutions can invest in SGBs.

Whereas Digital Gold investment is preferable for

  • Investors those who generally look for an investment that does not have a lock-in or a maturity period and can earn returns by holding an investment for a short term.
  • Digital gold allows the investor to earn returns by way of appreciation in gold prices.

When to Invest?

  • Investors can purchase SGBs when the RBI issues these bonds or from secondary market
  • The issuance of bonds is usually announced through a press release from the Government every 2 or 3 months with a window of one week where the Govt issues in tranches and investors can subscribe to SGB schemes.
  • Investors who are willing to buy at some other time can buy bonds that have already been issued in the earlier period. Investors can trade only during the trading periods which is between 9 am to 3.30 pm
  • Whereas, Investors can purchase and sell digital gold anytime just by visiting the issuer’s website or application. Unlike SGBs, Digital gold can be traded 24×7 throughout the year

Investment criteria

  • Sovereign Gold Bonds are denominated in the multiples of a gram with a minimum unit of 1 gram of gold, therefore, an investor must buy a minimum of one gram with a maximum limit for one year of 4 kg of gold per investor who can be an individual or a Hindu Undivided Family. For trusts and universities, 20 kg of gold can be purchased.
  • Whereas, in the case of Digital Gold the minimum amount one can buy is as low as one rupee.

Taxability on Gains or losses from the sale of SGBs and Digital gold

  • The amount that SGB holders receive at the time of maturity is tax-free. However, if they are redeemed before maturity, they shall attract Capital Gain tax. Also, the interest given on SGB deposits is not tax-free. The interest amount must be declared under ‘Income from Other Sources’ during tax returns and the tax will be levied as per the individual’s income tax slab.
  • As Gold is considered a capital asset irrespective of whether the investment is in the form of Physical Gold or Digital Gold it will attract a Capital Gain tax. In such a case, if the digital gold is held for less than 3 years it would be considered as Short term capital gains and will be taxable as per individual income tax slab rate. If the holding period is more than 3 years, the tax will be levied at the rate of 20% (with indexation benefit).

Comparing SGB with Digital Gold

BasisSGBDigital Gold
TradingYou can buy and sell Sovereign Gold Bonds on the stock exchanges.Digital Gold, on the other hand, is not traded in the stock market. However, you can buy/sell Digital Gold anytime (24×7) at your convenience. 
Holding PeriodIn comparison, Sovereign Gold Bonds have a minimum holding period of 5 years, however, can be sold on stock exchanges before 5 years as well but liquidity available on the stock exchange is a constraint. There is no fixed holding period for digital gold; you can sell it anytime at the current market price, making it a liquid asset.
AffordabilityMinimum investment is 1 gram of gold, which is currently around ~₹ 6000.Minimum investment in digital gold costs as low as ₹ 1.
StorageIn SGB no physical gold is involved.When you buy a certain amount of digital gold, an equivalent amount of gold is stored in physical form in a locker, which possesses a third party risk.
InterestSGBs provide 2.5% interest on the face value of bond.You do not get any interest on digital gold.
Costs IncurredNo GST is involved here, however normal Demat charges applicable if buy in secondary market.A 3% GST is levied on digital gold and gold price offered is usually higher.

Final Word

In conclusion, the choice between SGBs and digital gold depends on individual preferences and investment goals. SGBs are backed by the government and offer a cost-effective way to invest in gold, but they have long investment period (not much liquidity available in secondary market). Digital gold provides convenience, accessibility, and flexibility in buying and selling gold, but it may involve additional charges (GST + higher gold price) and not have the same level of government backing. It’s important to carefully evaluate these factors and choose the option that aligns with your investment objectives, risk tolerance, and ease of access.

Frequently Asked Questions (FAQs) :

Which is a better sovereign gold bond or FD?

SGB offers high returns with volatility along with the flexibility to buy and sell it easily. If you wish to gain substantial returns over time and save on tax, you should opt for SGB. Fixed deposits provide low but steady returns and are not impacted by fluctuations in the market.

Which are the top platforms to buy digital gold?

Paytm, Tanishq, Google Pay, PhonePe, and Airtel Payments Bank are the most used platforms for buying digital gold, however, there are some other platforms that one can use.

How long can I store digital gold?

There is no limit on the holding period for digital gold. One can hold it as long as he wishes, however there might be storage charges

Can I invest in gold via SIP form:

Yes, few platforms provide this facility to invest in digital gold via the SIP method.

Was this helpful?

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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