Sovereign Gold Bond Benefits: Key Things to Know

8 min read • Published 17 October 2022
Written by Vaibhav Khandelwal
Learn about Sovereign Gold Bond Benefits

Gold has always been a desirable asset, both in jewellery and as an investment option. A symbol of prosperity, gold is a valued metal despite its cost and is considered highly auspicious in Indian households.

However, buying and storing physical gold has drawbacks, as there is a risk of theft, and you incur storage and maintenance charges, too. Although gold is a great hedge against inflation, physical gold does not get you any returns, and the cost appreciation has been minimal over the years.

So to make investing in gold hassle-free, the Government of India launched sovereign gold bonds (SGB) in November 2015. One of the most important sovereign gold bond benefits is that, unlike physical gold, the SGBs yield a fixed interest percentage, making it a great investment option.

What are Sovereign Gold Bonds?

Sovereign gold bonds are securities issued by the Reserve Bank of India on behalf of the Indian government as an alternative to holding physical gold. These bonds are available in terms of grams of gold.

To know the features of SGB, please refer below:

  • The bonds have a maturity period of 8 years. However, investors can go for early redemption with RBI after 5 years. You can trade these bonds on the secondary market, i.e., on NSE and BSE
  • It yields an interest of 2.5% per annum on the face value.
  • The minimum investment quantity permitted is one gram of gold. For example, the issue price of Sovereign Gold Bond Scheme 2022-23 (Series I) for a unit of SGB was ₹5,091, which is your minimum investment amount.
  • You can buy these bonds offline from nationalised banks, designated post offices, scheduled foreign banks, scheduled private banks, and Stock Holding Corporation of India (SHCIL) offices.
  • To buy them online, you can visit the website of the listed scheduled commercial banks or broker. A discount of Rs. 50 per gram is given on the nominal value to encourage investment online transactions.
  • You can make the payment for sovereign gold bonds either in cash (up to Rs. 20,000) or via demand draft, cheque, or electronic banking. 
  • You need not pay any capital gains tax on maturity if you redeem the bond with the RBI.

Why did RBI issue Sovereign Gold Bonds?

India lacks reserves of gold; hence, to meet the high demand for gold in the market, it needs to depend on imports. However, this  importing the gold negatively impacts the macro fundamentals of the Indian economy, which in turn has an effect on our total import bill, and consequently on our currency. Since gold is likely to be in demand forever, the RBI came up with the scheme of sovereign gold bonds as a solution. 

The SGB scheme allows you to invest in gold but in a paper or digital form without requiring you to hold physical gold. Also, on maturity, you will be paid the amount equivalent to the price of per gram of gold on that day. This is an amazing investment idea for your hassle-free capital appreciation.

Read More: What is Unit Linked Insurance Plan? – ULIP Meaning | ULIP Full Form

Benefits of Sovereign Gold Bonds

Following are some Sovereign gold bond benefits:

1. Low risk

There are certain risks in every investment instrument in the financial market. However, since these bonds are backed by the government of India, the chances of defaults on repayment are almost negligible. The only risk that an SGB is subject to is market fluctuations which can cause volatility in gold prices and thus affect the returns you get from SGBs. 

2. Convenience

The primary purpose of SGB is to make the ownership of gold convenient. Physical gold is required in Indian families during events and festivities but comes with many additional servicing and making charges. There is always a risk of theft associated with it. The most important benefit of SGB is that it is entirely digital, making it convenient for you to invest in gold without worrying about its security and maintenance charges.

3. Capital appreciation – Tax Free

The capital appreciation generated at redemption is completely tax-free. Moreover, since gold is always in demand because of its widespread usage, the chances of unsteady movements in the intrinsic value of gold are negligible. This allows the investment corpus to grow, irrespective of market variations and global economic scenarios.

4. Hedge against inflation

A currency loses its purchasing power whenever inflation is high in a particular country, significantly affecting the returns on investment. The price of gold tends to rise when inflation is high. Hence, investment in gold schemes is considered a hedge against inflation, and sovereign gold bonds are no exception. 

5. Indexation benefit

Indexation is one of the many sovereign gold bond benefits. One of the common effects of high inflation is- it causes the price of investment to rise, but the returns stay the same. Gold bonds are more considerate in this regard. Long-term capital gains from sovereign gold bonds are subject to indexation benefit. Indexation benefit helps you reevaluate and adjust your investment’s purchase value by considering the effects of inflation. It helps you to calculate the new value of your invested amount and the real capital gain. 

6. Easily traded on the stock exchange

Another major sovereign gold bond benefits is that investors holding them in a dematerialised form can easily trade them on the stock exchanges. However liquidity available on stock exchanges are low and because of low liquidity most of the time SGBs trades at discount on exchanges.

7. Loan facility

One of the key benefits of SGBs is that they can be used as collateral to get a loan from any of the scheduled financial institutions, as stipulated by the Reserve Bank of India’s Loan-to-Value (LTV) regulations. LTV is the ratio of the size of the loan to the value of the bond against which the loan amount is being secured. For example if the total market value of your SGB holding is ₹1 lakh you can get up to ₹75,000 in loan against it.

Also Read: Learn How to Buy Sovereign Gold Bond


A sovereign gold bond scheme is the perfect solution if you are looking for an easy, low risk, and long-term investment plan. Sovereign gold bond benefits include being able to hold gold without having to face the problems typically associated with buying physical gold. In addition, you can buy a minimum of one gram of gold by paying the equivalent price and receive the periodical interest offered by the RBI, which makes this scheme highly affordable. 

Consider investing in this scheme to diversify your portfolio and gain capital appreciation, along with a semi-annually generated interest. Though these bonds cannot be redeemed until the 5th year of your investment, you can trade them in the secondary market, thus helping you liquidate your investment as and when you wish. Although sovereign gold bond benefits undoubtedly overshadow its negligible risks, you should thoroughly research before investing.

FAQs about SGB

1. Who is eligible to invest in SGB?

Residents of India, as described in the Foreign Exchange Management Act, 1999, are eligible to invest in SGB. Eligible residents include:
>Hindu Undivided Families 
>Trusts and charitable institutions
>Individuals with fluctuating residential status from resident to non-resident may also retain SGB until early redemption or maturity

2. What are the Know-Your-Customer (KYC) norms for SGB?

Every application must be accompanied by the ‘PAN Number’ issued by the Income Tax Department to the investor(s).

3. What is the minimum and maximum limit for investment?

What is the minimum and maximum limit for investment?
The minimum amount of bonds you can hold is one gram. The maximum subscription could vary:
> Individuals and HUFs can hold up to 4 kg of gold
> Charitable institutions and trusts can buy 20 kg of gold

4. Is Tax Deducted at Source (TDS) applicable on these bonds?

No, TDS is not applicable to sovereign gold bonds. However, there will be tax on STCG according to income slab and LTCG of 20%+ indexation benefits if sold before maturity. SGBs held till maturity are tax exempt. 

5. At what price are sovereign gold bonds sold?

The selling price of the bonds is determined by calculating a simple average of the closing price of gold of 999 purity for the last three business days of the week preceding the subscription period as published by the Indian Bullion and Jewellers Association Limited. The nominal value of these bonds is fixed in Indian Rupees. 

6. Can I sell gold bond anytime?

Yes, you can sell gold bonds anytime after purchasing them either from the primary or secondary market. Do note that selling SGBs will be subject to taxation based on your holding period.

7. Is SGB taxable after 8 years?

If you are holding SGBs till 8 years it will be exempted from tax.

8. Can I withdraw SGB after 5 years?

You can redeem SGB after 5 years, but the amount you receive from the redemption will be subject long-term capital gain.

9. Can I buy SGB every month?

You can buy SGB every month from the secondary market subject to their availability .

10. What happens if I redeem SGB after 5 years?

If you redeem your SGB after 5 years you will have to pay an LTCG of 20%.

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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. learn more

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