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

Gold has always been a lucrative investment avenue in India, making the country one of the largest consumers of yellow metal in the world. Two of the most popular variants are Sovereign Gold Bonds (SGBs) and Gold Exchange Traded Funds (Gold ETFs). These alternate gold investment tools allow you to diversify your investment portfolio without any hassles. 


Read on to know more about these popular variants and how SGB and Gold ETFs differ from each other.

What are Sovereign Gold Bonds?

SGBs are government securities issued by the RBI and have denominations in grams. Introduced by the Government of India in 2015, the main aim of its launch was to minimise the foreign exchange outflow. Another aim of SGB was to decrease the demand for physical gold. 


These bonds are substitutes for physical gold, and you can get them online by visiting any of the registered banks’ websites. You can also easily invest offline by visiting banks, stock exchanges, and specific post offices. 


There is a tenor of up to 8 years and a lock-in period of 5 years in SGBs. You can get an interest of up to 2.5% p.a., which is paid half-yearly, depending on the nominal bond value. However, note that there is no TDS applied to your interest earnings.


When planning to sell the bond, you may do so after the fifth year of SGB investment. In premature redemption, capital gains are taxable. However, when an SGB matures, the entire redemption amount is credited to your bank account without capital gains tax.

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What are Gold ETFs?

Gold Exchange-Traded Funds are passive investment instruments that track the domestic prices of physical gold. Available in paper or dematerialised form, these funds are backed by very high-quality gold, with each ETF unit worth as much as one gram of physical gold.


Like equity trading in stock exchanges, you can easily trade in Gold ETFs online through your demat accounts. You can choose from the various Gold ETFs listed in the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). 


Thus, Gold ETFs not only provide the simplicity of investing in gold but also offer the ease of investment and redemption. When you redeem your investments in a Gold ETF, you will receive cash based on the current price of physical gold.


Hence, the sole way you can make profits on ETF investment is through fluctuations in the actual price of gold.


SGB vs ETF: Crucial Pointers to Note

Before understanding the key differences between SGB and ETF, it helps to know more about the Exchange-Traded Funds. ETFs are simply mutual funds investing in gold bullions, and, as Gold ETFs have the exact cost across India. Here, transactions are transparent, and ETFs are more accessible.


However, there is an expense ratio of 1% when transacting in ETFs, along with other additional charges. Understanding these charges is vital before investing. 


Investing in gold ETFs is definitely a smart strategy you can adopt when planning to diversify your portfolio. Also, during financial crunch situations, you can redeem these gold ETFs to finance your immediate expenses.


To help you analyse the key differences between SGB and ETF, here is a tabular representation:



Gold ETF

Minimum limit of 1 gram and a maximum limit of up to 4 kilograms

Minimum limit of 1 gram with no cap on the maximum limit

A tenor of 8 years, but withdrawals are possible after 5 years

No tenor or lock-in period

The expense ratio is nil

High expense ratio due to the involvement of brokers 

Lower liquidity

Higher liquidity when compared to SGBs

No capital gains taxation when held till maturity 

Capital gains are taxable

Fixed interest income of up to 2.50% p.a. paid twice in a year

No fixed-interest income

Can be bought easily online from banks, stock brokers, and investment platforms

Easily traded as equities in stock markets through stock brokers

The returns on SGBs are above the returns on actual gold 

The returns provided by Gold ETFs are lower than the returns on actual gold

Issued by the Reserve Bank of India and backed by sovereign guarantee, it has almost no risk potential

Backed by high-quality gold but there can be risks associated with the AMC managing the funds 

As gold is a popular asset globally, investing in this commodity can offer numerous benefits. However, before investing in a particular gold type, understanding the distinguishing features of SGB vs physical gold and ETF is crucial. 

Is SGB the Best Gold Investment?

SGBs are among the best alternatives to holding physical gold. This is because not only do they offer convenience and safety but also capital appreciation benefits. 


You will also receive a fixed return to the tune of 2.5% per annum on the nominal value, which gets paid out twice a year. Here are a few other reasons why SGBs could be the best gold investment for you: 

  • Cost-effective option as they do not come with making charges and GST

  • Offered to a wide range of entities like resident individuals, HUFs, trusts, universities, and charitable organisations

  • Comes with the option to make premature withdrawals 

  • Can be purchased in flexible denominations, ranging from 1 gram to 20 kilograms

Whether you choose to invest in SGBs or in mutual funds, you can easily do so through the Bajaj Markets platform. Invest today via an entirely digital process and take the necessary steps for financial growth.

FAQs on SGB vs ETF

Which is an ideal option between SGB vs ETF?

The ideal option depends on your financial goals. A crucial point to remember is that gold ETFs are traded on the stock exchange and offer high liquidity. However, you cannot earn any interest income with ETFs. On the contrary, investing in SGBs can fetch you up to 2.5% p.a. as interest income, twice a year. 

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

The cost of physical gold varies from one dealer to another. However, the rate of a Gold ETF depends on the demand and supply factor on a stock exchange. Moreover, the price of a Gold ETF does not include making charges compared to the physical gold.

Can a minor invest in SGBs?

Yes, but the application has to be made by a guardian on behalf of the minor.

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

While the tenor of SGBs can go up to 8 years, you can make a withdrawal after 5 years of investment. On the other hand, Gold ETFs can be traded in stock markets and have no lock-in period.

Is GST applicable on Gold ETF?

No. Unlike physical gold, Goods and Services Tax (GST) is not applicable to the purchase of Gold ETFs.

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