SGBs vs Phsical Gold

Posted by Kams Mis on July 11th, 2022

What is physical gold?

If gold is in tangible form, it is the most popular type of investment. It can be purchased as jewellery, gold coins, gold biscuits, and gold bars. Unlike the acquisition of digital gold, the purchase of real gold is normally kept very private.

Any jeweller can provide you with the yellow metal. As a result, there is no need for a broker or intermediary, and there is no counterparty risk. Physical gold can be purchased in any amount. However, gold biscuits are sold in increments of 10 grammes, thus the minimum investment in actual gold is slightly higher. It is always recommended that you save tangible proofs of all your gold purchases. It will aid them in the preparation of their tax returns.


Physical gold was universally accepted. It can be liquidated at any time, anywhere in the globe, for immediate cash. Physical gold is taxed in the same way as debt securities are. Gains are taxable at the income tax slab rates in the short term (before three years). Long-term capital gains are subject to a 20 percent tax rate with an indexation advantage. In addition, there is a 4% surcharge and a 4 percent cess (if applicable).

Theft is one of the most significant risks of owning actual gold. Because gold is a real and valued asset, it is vulnerable to theft. The gold you buy can be of poor quality, and purity is a major worry. Furthermore, storing actual gold incurs significant costs. Making charges for gold jewellery can be fairly expensive. Furthermore, gold prices differ from one dealer to the next and are not consistent.

Wealth tax is required for purchases exceeding INR 30 lakhs. As a result, purchasing actual gold entails significant fees. Furthermore, the resale value of real gold is lower than that of digital gold.

Benefits of investing in physical gold

Following are the benefits of investing in physical gold:

  1. Take physical possession of the investment: Investors can keep the investment in its original form. They come in a variety of shapes and sizes, including ornaments, bars, and coins. As a result, it is considered one of the most secure investments.
  2. Emergency: In the event of a market or economic collapse, all other assets will vanish, but the gold that one holds will stay. As a result, in the event of a catastrophe, it safeguards the investment. Gold ETFs (exchange traded funds) will not provide the same protection as actual gold in the event of unanticipated political and societal crises. Physical gold provides 'financial security' that is unlikely to be harmed.

  3. Inflation and currency depreciation: Gold investments may aid in the protection of assets against inflation and currency devaluation.

  4.  Complete wealth control: Physical gold assets allow investors to choose when to buy and sell. The asset is under the control of the investors. As a result, the investor has entire control over the asset's management.

What is Sovereign gold bonds?

Sovereign gold bonds are government securities issued on behalf of the government by the Reserve Bank of India (RBI). Each unit is one gramme of gold, and they are denominated in gold. The interest rate on these debt securities is fixed. They can also be sold in the secondary market to profit from capital gains.

Individuals and HUF can invest as little as one gramme and as much as four kilogrammes in these bonds. The maximum limit for trusts and entities, on the other hand, is 20 kgs, as determined by the government from time to time. Individual or cooperative SGBs are possible. The limit also applies to the first applicant in a joint application. Nationalized banks, scheduled private and foreign banks, authorised stock exchanges, Stock Holding Corporation of India Ltd. (SHCIL), and designated post offices are all places where SGBs can be applied for. These bonds can also be applied for online through the websites of recognised commercial institutions. SGBs are held in the form of certificates and can also be dematerialized. As a result, there is no chance of theft or extra storage expenditures.

Interest and Taxation

SGBs have a set interest rate of 2.5 percent each year. Interest is paid out every six months and is taxable at the individual income tax slab rates. Interest income, on the other hand, is exempt from TDS. The bond has an eight-year term and a five-year fixed lock-in period. From the fifth year onwards, the bond can be sold on the secondary market through stock exchanges. Premature redemption gains, on the other hand, are taxable in the same way that real gold is.

The bond matures after eight years, and the redemption funds are automatically deposited to the bank account. The capital gains earned at the end of the term are tax-free. The buy and redemption prices are determined by averaging the closing prices of gold with a purity of 999 over the previous three days. The gold prices will be published by the India Bullion and Jewelers Association Limited (INR).

Benefits of investing in SGBs

Following are the benefits of investing in SGBs:

  1. Ensure your safety: Apart from market risk, there are no other risks connected with keeping real gold in SGBs. On the bonds, there are no heavy creating or designing expenses or TDS. Furthermore, no one has the ability to steal or alter ownership.

  2. Earnings from a second source: SGBs have a set interest rate of 2.5 percent each year. Payments of interest are made twice a year. This might be a new source of revenue for investors.

  3. Protect yourself from inflation: Gold has seen tremendous capital appreciation in the past. As a result, investors will profit from rises in the real worth of their investments over time, accumulating enormous wealth.

  4. On the internet: Investors can readily apply for SGB via the internet. They can do so by visiting the websites of the commercial banks listed. For online applications and payments, the issuance price of Gold Bonds is normally INR 50 per grams of gold less than the nominal value.

  5. Depository Account: Investors can keep SGBs in a demat account. For this to happen, the investors must make a specific request in the application form. Until the dematerialization process is completed, the bonds will be held in the RBI's books. Additionally, after the bond is issued, the option to convert the holdings to demat is accessible.

  6. The Benefit of Indexation: If you move your bond before it expires, you may be able to profit from indexation. Furthermore, a sovereign guarantee protects the redemption money as well as the interest collected.

  7. Can be easily traded on stock market: SGBs can be traded on stock exchanges by individuals. Investors can trade bonds on the National Stock Exchange or the Bombay Stock Exchange after five years of owning them.

  8. Collateral: Banks accept SGBs as collateral for loans. They treat them as a gold loan after fixing the loan-to-value (LTV) ratio to the value of gold. The India Bullion and Jewellers Association Limited sets the ratio.


Gold is the most sought-after asset, with social and emotional significance. It has long been a popular investment in India. With the passage of time, gold investment has undergone numerous modifications. Gold coins, jewellery, and gold biscuits aren't the only ways to invest in gold. Digital gold has been issued by the Indian government in the form of certificates and mutual funds that can be stored in a dematerialized format.

One need not be concerned about their gold being stolen, storage costs, or purity when investing in Sovereign Gold Bonds. However, with these bonds, there may be a liquidity concern. Physical gold is widely accepted and may be sold for cash almost anyplace. SBGs, on the other hand, have a 5-year lock-in period and mature after eight years. As a result, before investing, one must weigh both options in terms of liquidity, minimum investment, and storage, among other factors.

Physical gold vs. Sovereign gold bonds: Having gold in an investing portfolio is critical for diversification. Furthermore, as compared to other investments, gold is more stable during market instability. It functions as a buffer against inflation and economic uncertainty, allowing the value of an investor's portfolio to remain stable.


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Kams Mis

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Kams Mis
Joined: July 11th, 2022
Articles Posted: 2

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