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 a sentimental as well as emotional value attached to it in India. It is considered a great investment option among Indians everywhere. The Government of India recognised the importance of gold as an investment tool and introduced Sovereign Gold Bonds (SGB) through which one can invest in gold digitally. Mutual funds have also been a great opportunity where you invest in a myriad of securities, either debt or equity. Learn more about Sovereign Gold Bonds vs Mutual funds and find out which is the better investment option below.

What is a Sovereign Gold Bond?

Sovereign Gold Bonds (SGBs) are government securities,denominated in grams of gold that are issued by the Reserve Bank of India (RBI). When investing in an SGB, you will not own gold in its physical form but rather in a bond format. Whenever you wish to sell the bond, you will get the current market value for the gold. You have to pay and redeem the Sovereign Gold Bonds in cash. These gold bonds can be converted into a Demat format and traded in the stock exchange, which can be quite useful.

What are Mutual Funds?

Mutual Funds (MF) is a financial instrument owned by Asset Management Companies that pool together the funds from different investors and invest in various securities, including bonds and stocks, to gain profit. Since the funds are managed professionally, investors do not have to fret about not having knowledge about the stock market. With this tool, you can diversify your portfolio at an affordable price.


Now that we know what SGBs and mutual funds are, let us take a look at SGB vs mutual funds:


Sovereign Gold Bonds Vs Mutual Funds

Sovereign Gold Bonds are different from mutual funds in the following ways:


Sovereign Gold Bonds

Mutual Funds

Investment Avenues

Exchanges and authorised banks have online and offline avenues to invest in these gold bonds.

You do not have to have a Demat account to invest. Units can be purchased through AMC companies, online platforms and distributors.


No additional charges

Other expenses such as fund management fees are applicable

Investment Limit

No more than 4 kgs of gold

No limit


You can take a loan against SGB. It is similar to a loan against gold.

You can take a loan against investments. It is up to 50% of the fund’s asset value for equity funds and up to 80% for debt funds.


After the 5-year lock-in period, SGBs can be traded in the stock market.

You can exit the scheme at any time, but premature withdrawal charges apply.

Minimum Investment Needed

If you wish to invest in an SGB, you must invest a minimum value of one gram of gold

If you want to invest through a SIP  rather than a lump sum, you can start with a minimum of Rs.500

Lock-in Period

5 years

No lock-in period.

3 years in case of ELSS funds.

Issuance Unit Value 

Denominated in grams of gold

Units start at Rs.10 per unit

Taxation Applicable

Capital gains tax is zero. However, in case of premature redemption, taxes are applicable similar to debt.

Capital gains are in line with debt or equity based on the MF. Taxes are applicable based on the time-period.


The returns are similar to that of physical gold. Additionally, you get 2.5% interest per year. 

The returns you get vary depending on market condition and fund investment. Returns are not fixed or guaranteed.

Who Should Invest in an SGB?

People who are looking to get some gold exposure without the hassle of storage can consider investing in SGBs. They are ideal for anyone that’s looking for a low-risk, low-cost investment avenue that also comes with assured returns. 

Apart from returns generated by appreciation of the SGBs, investors will also get assured returns with annual interest rate of 2.50%. It also eliminates the cost and risk of storage that comes with physical gold. Unlike with physical gold, GST is not levied on SGBs. Moreover, you can get tax benefits with capital gains tax exemption on redemption. 

SGBs are also tradeable in the stock exchanges within a fortnight of issuance, in addition to being transferable. And, in case you’re in a sticky financial situation but do not wish to redeem your SGBs, you can get a loan against your SGBs. 

Who Should Invest in a Mutual Fund?

Mutual funds are best suited for investors who are looking for equity exposure without the risk associated with stock market investment. Mutual funds are professionally managed and hence, well regulated. Moreover, there are a number of different types of mutual funds so you can choose one that suits your financial needs, goals and risk appetite best. 

Generally, the returns on mutual funds are higher than what you can get with more conservative investment options. If you’re someone that’s looking for a low-cost investment that has the potential to generate high returns, mutual funds may be right for you. They are also great for people who have a relatively longer investment horizon and a slightly higher risk appetite. 

Frequently Asked Questions

SGB vs mutual funds: which is better?

Sovereign gold bonds are best suited for individuals with a low-risk appetite. Mutual funds are directly linked to the stock market, so they are better suited for individuals with medium to high-risk appetites.

Who regulates Mutual Funds (MF) in India?

The Securities Exchange and Board of India (SEBI) is the regulatory body for mutual funds. They strive to protect the interest of the investors.

Can you transfer SGBs?

SGBs can be transferred/gifted to anybody who passes the criteria for eligibility before maturity.

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