Sovereign Gold Bond vs Physical Gold: What Should You Invest In?

Gold is considered one of the most valuable commodities in India, not just economically but also for cultural reasons. Gold ornaments hold a lot of significance on auspicious occasions, such as weddings, worship, and various other ceremonies.

However, if you are considering buying gold purely from an investment point of view, you also have the option of investing in digital gold or Sovereign Gold Bonds (SGBs) offered by the RBI. In this article, we will see how buying physical gold compares with investing in SGBs. Read on to learn more.

Understanding Sovereign Gold Bonds

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Sovereign gold bonds (SGBs) are debt securities or bonds issued by the Reserve Bank of India (RBI) on behalf of the Indian government. The government decides the issue dates of these bonds. These bonds are released based on units. Each unit represents one gram of gold.

The minimum investment in SGB is one gram. However, the maximum investment depends on the category of the investor. For individual investors and Hindu Undivided Families (HUFs), the maximum limit is 4 kg and for private trusts and other organisations, the limit is 20 kg.

Read More: Sovereign Gold Bond Scheme- Things to Know

In simple words, the sovereign gold bond is gold you own in the form of paper. You get a certificate once you purchase a gold bond. You can buy SGBs from branches of nationalised banks, private and foreign banks, stock exchanges, and post offices. Moreover, you can also purchase these bonds online

Benefits of investing in SGBs

Safety and Security

SGBs are not associated with market conditions. So, they offer guaranteed returns. As per the RBI guidelines, the interest rate is fixed at 2.5% per annum. The interest is paid on a half-yearly basis. Notably, this interest rate is over and above the gains/losses from gold price appreciation/depreciation.

Read More: Sovereign Gold Bond Benefits: Key Things to Know

Investing in Sovereign Gold Bonds is also safer than investing in physical gold. As all you get is a paper certificate, you need not protect your investment from burglary/theft.

Suitable for long-term investment

SGBs have a tenure of eight years from the date of issue. So, if you are looking for a long-term investment with guaranteed returns, you should consider investing in SGBs. In addition, premature redemption is allowed after five years and you can also sell in the secondary market if liquidity is needed.

Ease of investment

You can invest in SGBs through online platforms as well as offline. The official websites and apps of nationalised and private banks and stock exchanges offer the facility of online account opening and investment.

Collateral for availing loan

SGBs can be used as collateral for availing loans. You can avail loans based on the “loan to value” ratio set by respective banks.

Also Read: How to Take a Loan Against PF?

Disadvantages of investing in SGB

Difficulty in liquidating

SGBs have a lock-in period of five years. It means you will not be able to redeem, transfer, or sell SGBs before the completion of five years from the date of issue. Moreover, if you need money urgently before the completion of five years, you will not be able to liquidate these investments. Also, there is a lag of one day between the application for redemption and the credit in the account for most banks SGBs are available for trade in the secondary market, however, liquidity available in the secondary market is very less.

Impact of gold prices

If the gold price plummets, there is a possibility that you may suffer losses. Though the number of units remains the same, the volatility in the price of gold impacts the returns. Moreover, redemption on the maturity date involves volatility in returns. The closing price depends upon the average cost of gold for the last three business days before the maturity date.

Understanding Investment in Physical Gold

You can purchase physical gold in the form of bars, jewellery, coins, biscuits, and other physical forms. Starting from the minimum weight of one gram, you can purchase, store, and sell an unlimited amount of gold in India. You can purchase gold based on purity from any jeweller in your area. 

Nowadays, you can also purchase gold through online platforms and the official websites of reputable jewellers. As you weigh various factors in the comparison of sovereign gold bonds vs. physical gold, one of the differentiating factors is the lack of involvement of a broker or third party when it comes to investing in physical gold. So, you have complete control over the investment process. There are many benefits to owning physical gold.

Read More: The Reasons behind Gold Rates Fluctuation

Benefits of investing in physical gold

Ease of purchasing

You can visit the jewellery store in your area, determine the purity and price, state the weight, and purchase gold directly. The process is akin to buying chocolates from a grocery store, with the exception that you may be required to submit an ID proof if you are purchasing physical gold in large quantities. Moreover, you can pay through various payment options such as cash, cheque, debit or credit card or UPI to purchase physical gold.


Investment in physical gold is favourable in terms of liquidity. Suppose you need money urgently for any purpose, such as a medical emergency, paying educational fees, or recovering from business losses, you can sell the physical gold and avail the payment of the sold gold immediately as per the market price for the day.

Complete control over investment

If you find that the gold price has significantly risen above your purchase price and reached its peak, you can sell it immediately and book a profit. This way, you get complete control and flexibility if you invest in physical gold.

Also Read: Sovereign Gold Bond vs Digital Gold: Key Differences

Disadvantages of investing in physical gold

Difficulties related to storage and security

With the ownership of physical gold comes great responsibility for storage and security. There is always a risk of theft or burglary. If you purchase a large amount of gold, you need to store it in your home securely and keep it away from prying eyes.

Losses while selling

When you purchase a gold ornament, you need to pay the “making charges” along with the cost of gold based on the total weight. However, while selling, you only get the price based on the weight. You will not be compensated for making charges.

No interest paid

You do not earn any interest on the physical gold you own. The profit entirely depends upon the increase in gold prices over time. Moreover, there is the possibility of a decrease in prices over time as well. In this case, if you compare sovereign gold bonds and physical gold, you will get a fixed interest rate of 2.5% if you invest in sovereign gold bonds at any time.

Also Read: Sovereign Gold Bond Scheme– Things to Know

Sovereign Gold Bonds vs Physical Gold: Quick Comparison


Sovereign Gold Bonds

Physical Gold

Type of Ownership

Can be owned in both paper and electronic format. Certificates serve as proof of investment.

Can be purchased in the form of bars, coins, ornaments, and biscuits. A receipt is provided for every purchase.


The Indian government determines the issue dates, however prices are market driven, the government takes the last 3 days average price.

Prices are volatile and vary from time to time (market-dependent).


Liquidity available in the secondary market is very less and redemption can be done after 5 years.

It is easy to liquidate as it can be sold at any time in a jewellery store.

Investment tenure

The tenure is fixed at eight years by the RBI.

There is no fixed tenure for investment.

Lock-in period

Redemption can be done after 5 year, however you can sell in the secondary market if demand is available.

There is no lock-in period.

Rate of interest

The rate of interest is fixed at 2.5% per annum, and interest is paid on a half-yearly basis.

The interest is not offered for investment in physical gold. Returns depend on the increase in gold prices.

Demat account

The Demat account is not mandatory. However, investors can hold their units in a Demat account.

No requirement for a Demat account.

Alaso Read: Learn How to Buy Sovereign Gold Bond

Key Takeaways

Gold will always remain one of the most important commodities in Indian culture, as well as the principal commodity of global trade. If you are considering diversifying your investment portfolio, you should definitely invest in gold. While deciding between sovereign gold bonds and physical gold, you must consider your financial goals and weigh the pros and cons of each investment type.


Q. Is physical gold suitable for long-term investment?

A. If you are planning to invest for the long term, investing in Sovereign Gold Bonds (SGBs) makes more sense as you earn an additional 2.5% interest rate on SGBs. Moreover, there is no hassle of protecting your investment from theft/burglary.

Q. What is the maximum limit for SGB investments?

A. For individuals and Hindu Undivided Families (HUF), the maximum limit for SGB investment is 4 kilograms. However, it is 20 kilograms for entities such as trusts, organisations, and corporations.

Q. Who are the authorised agencies that can sell SGBs?

A. Nationalised banks, private and foreign banks, stock exchanges, and post offices are authorised agencies that can sell SGBs.

Q. What should I check before buying physical gold?

A. You should check the level of purity, price per gram, certifications, and other additional charges while purchasing physical gold.

Q. Which is the more favourable investment option between SGB and physical gold when it comes to liquidity?

A. When it comes to liquidity, physical gold investment is favourable. Because you can sell physical gold at any time. However, SGBs come with a five-year lock-in period. You can trade or transfer SGBs only after the completion of five years from the issue date. 

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Credit Principal at Wint Wealth

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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Disclaimer: This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The article may also contain information which are the personal views/opinions of the authors. The information contained in this article is for general, educational and awareness purposes only and is not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision, whether related to investment or otherwise, taken on the basis of this article.

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