Bonds issued by Reserve Bank of India | Returns linked with market price of gold | Additional 2.5% interest p.a. (No TDS applicable) | Bonds tradable on exchange Invest Now

When investing in digital gold, you can choose from two popular options. These are Sovereign Gold Bonds (SGBs) and Gold Exchange Traded Funds (Gold ETFs). Apart from helping you save on making and GST charges, both offer ease of trade. 

 

Compare their features and benefits to understand which you should invest in. On Bajaj Markets, you can easily invest in SGBs when the tranche is open for subscription. 

Difference Between SGBs and Gold ETFs

Check out the table below to know how SGBs and Gold ETFs differ. 

Parameter

SGB

Gold ETF

Regulator 

Issued by the Reserve Bank of India and backed by a sovereign guarantee 

Subject to SEBI Regulations

Investment Cap

Minimum limit of 1 gram and a maximum limit of up to 4 kilograms. Applicable to individuals and HUFs

Minimum limit various across funds There is no maximum limit

Minimum Duration

A tenor of 8 years; withdrawals allowed after 5 years

No tenor or lock-in period

Expense Ratio

The expense ratio is nil

Expense ratio varies due to the involvement of brokers 

Liquidity

Lower liquidity

Higher liquidity  

Capital Gains

Capital gains are not taxed if held till maturity 

Capital gains are taxable

Fixed income

Additional interest rate of 2.50% p.a. paid twice in a year

No fixed-interest income

Returns

The returns on SGBs are above the returns on actual gold 

Since they have lower expenses, Gold ETFs provide slightly higher returns than physical gold

Factors to Consider When Choosing Between SGB and Gold ETF

Both investment avenues differ in terms of risk, expenses, and more. Here are the things to take into account:

  • Expenses

Investment in Gold ETFs attracts asset management fees. This may range between 0.2% and 0.5% of the invested amount. Since no Asset Management Company (AMC) manages SGBs, there are no associated charges.

  • Risk Tolerance

Since SGBs come with a sovereign guarantee, there is no risk of capital loss. Gold ETFs have market-associated risks. They may be a better investment avenue if you have an aggressive investment strategy.

  • Investment Horizon

Investors get an extra 2.5% p.a. interest in SGBs. This may make it a better investment option for the long term. For short-term goals, you could opt for Gold ETFs as they don’t have any lock-in period.

  • Liquidity and Flexibility

Gold ETFs have high liquidity as you can trade them in stock markets, and there is no lock-in period. SGBs have low liquidity as you can redeem only after the lock-in period of 5 years.

  • Taxation

The interest income earned on SGBs will be taxed as per your income tax slab. Your capital gains, however, will be exempt if you hold the investment till maturity. In Gold ETFs, taxes will apply on capital gains as per your slab rate, irrespective of the holding period.

Frequently Asked Questions

Which is an ideal option between SGB vs ETF?

It depends on your financial goals. While you can trade Gold ETFs on the stock exchange, they do not give assured returns. Investing in SGBs will allow you to earn up to 2.5% p.a. as interest income. 

How is the price of physical gold different from a Gold ETF?

The cost of physical gold varies from one dealer to another, and there are additional charges. These include making charges and GST. This is not the case in Gold ETFs and, so, there is a price difference. 

Can a minor invest in SGBs?

Yes, but a guardian has to apply on behalf of the minor.

What is the lock-in period for Gold Exchange-Traded Funds and Sovereign Gold Bonds?

For SGBs, the lock-in period is 5 years but there is no lock-in period in Gold ETFs. 

Is GST applicable on Gold ETF?

No. Unlike with physical gold, GST does not apply when you invest in Gold ETFs.

Can I convert Gold ETFs into physical gold?

Yes. But the accumulated units must be 1kg. If you want to convert the investment, you can contact your fund house to know the process. 

What are the disadvantages of investing in Sovereign Gold Bonds?

SGBs have low liquidity as there is a lock-in period of 5 years. So, you can only redeem them after 5 years. But this is not the case for other alternatives like ETFs and physical gold. 

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