Indians have cherished gold for generations, not only for its use as jewellery but also as an effective means to store wealth. Today’s investors have a better, smarter alternative to the coins and ornaments our grandparents saved: Sovereign Gold Bonds (SGBs).
SGBs, which are issued by the Reserve Bank of India, backed by the government, allow you to have gold ownership without being concerned about purity, safety, or storage. Additionally, they give you interest as the value of your gold investment steadily increases.
In this blog, we will explain what SGBs are, how they work, and why they might be a great addition to your investment portfolio.
Understanding Sovereign Gold Bonds
Sovereign Gold Bonds (SGBs) are a convenient way to invest in gold without actually buying or storing the metal. Issued by the Reserve Bank of India (RBI) on behalf of the Government of India, these bonds are among the safest gold investment options available.
Instead of keeping physical gold at home or in a locker, investors purchase these bonds, which are linked to the prevailing market price of gold. As gold prices rise, the value of your SGB investment rises accordingly.
What makes SGBs unique is that they not only mirror the price of gold but also pay an assured interest of 2.5% per year, credited semi-annually to your bank account. This additional return is something you won’t get with physical gold or even gold ETFs.
Read Also: Electoral Bonds Explained: What Are They and Why Did Supreme Court Ban It?
Key Features of Sovereign Gold Bonds
1. Denomination
You can buy SGBs in amounts of 1 gram of gold or more. It’s great if you want to get some gold without having to buy a lot of it.
2. Tenure: 8 Years
You can redeem each bond early, but only on interest payment dates, after the 5th year.
3. Interest Income
You get 2.50% interest on your investment annually, which is paid out twice a year.
4. Redemption
When the investment matures or you withdraw early, you get the cash value of gold in the market (no physical delivery).
5. Tax Benefits
You have to pay taxes on interest earned.
- If you hold it until it matures, you won’t have to pay capital gains tax.
- If you sell SGBs on stock exchanges after holding for more than 12 months, you will pay 12.5% long-term capital gains tax without any indexation benefit.
6. No worries about Storage & Purity
There is no risk of theft, impurity, or storage fees because you do not hold real gold.
7. How it is held
You can either keep SGBs in Demat form or get a paper certificate. Do what works best for you.
8. Can be traded
You can buy or sell them in the secondary market before they mature because they are listed on stock exchanges. However, liquidity may be different.
9. Collateral for a loan
Just like real gold, SGBs can be used as collateral for loans.
Read Also: Straight Bond: Key Features, Benefits & Risks
Advantages of Investing in Sovereign Gold Bonds
1. Generate Additional Income
SGBs pay 2.5% annual interest, which is credited to your bank account every six months, unlike physical gold or gold ETFs.
2. No Troubles with Storage
You don’t have to worry about purity challenges, locker fees, or safekeeping. Without actually holding the gold, you are making an investment in it.
3. Backed by the Government of India
SGBs are among the safest gold investment options available because they are issued by the RBI on behalf of the Indian government.
4. Capital Gains Without Tax
Any capital gains you make from holding your SGBs until they mature (eight years) are entirely tax-free. Compared to other gold investment options, that is a significant advantage.
5. Minimal Barrier to Entry
SGBs are accessible to even small investors because you can begin investing with just one gram of gold.
6. Capable of Serving as Collateral for Loans
SGBs can be pledged as security for bank and financial institution loans, just like real gold.
7. Tradable on Stock Exchanges
You have to exit before maturity? You can sell your SGBs in the secondary market (on stock exchanges).
8. Simple and Transparent Investment
Unlike jewellery or coins, there are no manufacturing fees, waste expenses, or quality concerns.
9. Options for Digital or Physical Holding
Depending on what works best for you, you can hold them as paper certificates or in Demat form.
10. Perfect for Diversifying Your Portfolio
When there is inflation or economic uncertainty, gold usually performs well. SGBs provide an easy way to increase your portfolio’s exposure to gold.
Why did Government Stop Issuing New SGBs
SGBs were initially seen as an option for attracting investors against “paper gold,” lowering imports, and providing a secure return.
However, it became too costly to maintain due to the large government payouts caused by rising gold prices. Even though the RBI backed the bonds, they ultimately caused financial strain and missed targets, which led authorities to stop issuing new ones around the February 2024–FY25 budget.
The price of gold was about ₹2,400 per gram in 2015, when the scheme started off. As gold prices rose to over ₹8,000 per gram over time, the government was compelled to pay back investors at these exorbitant rates on top of the 2.5% interest that had been promised.
As of September 2025, gold prices have risen to over ₹10,500 per gram, representing a 4x increase since 2015. This dramatic price appreciation has resulted in substantial returns for SGB investors, with some early series showing returns exceeding 150%. Currently, as of the FY25 budget, no new SGBs are being issued.
The present investors are not impacted; redemption occurs following the original terms, and interest payments (2.5%) continue until maturity.
Read Also: What Is a Callable Bond?
How to buy SGBs in the Secondary Market
You can buy SGBs in the secondary market by following the steps mentioned below:
- Open a Demat Account
- Search for available SGBs. Each bond will have a name, SGBMAY28 (Sovereign Gold Bonds maturing May 2028), etc.
- Check the details like price per gram, maturity date, interest payment dates, etc.
- Place your buy order.
- Earn Interest & hold till maturity. Once matured, RBI will credit the redemption amount, depending on the then gold price, directly to your bank account
Read Also: What are War Bonds?
Who Should Invest in Sovereign Gold Bonds
1. Long-term Gold Investors
SGBs are a better option than physical gold if you have already made a long-term investment in gold, say for five to eight years or longer. You receive returns on the price of gold in addition to additional interest income (2.5% annually).
2. Individuals Who Decide Not to Keep Physical Gold in Storage
Concerned about locker fees, purity, or safety? SGBs eliminate the hassle of storage, charging, and theft concerns.
3. Investors who want to save tax
You pay no capital gains tax if you hold SGBs until maturity, that is, eight years. When compared to selling gold ETFs or jewellery, that is an important win.
4. Risk-Averse Investors Seeking a Secure Choice
Since the Government of India is issuing these bonds, there is no credit risk, making them the safest option available.
5. Investors Seeking Passive Income
Apart from the gold returns, the 2.5% annual interest that is paid every six months acts as a little bonus.
6. Individuals Seeking to Expand Their Investment Portfolio
Including a small amount of gold in your portfolio helps you manage risk, particularly when there is inflation or market volatility. SGBs are an effective and safe method of doing that.
Read Also: What is Insurance Bond?
Conclusion
Sovereign Gold Bonds combine innovation and tradition to offer investors more than just another gold investment option. Along with the benefits of regular interest income, tax advantages, and no storage hassles, you also get the security and timeless value of gold.
SGBs provide a more skilled and lucrative option if you intend to hold gold for an extended period of time. They are secure, supported by the government, and made to blend in perfectly with any contemporary investment plan. Therefore, the next time you consider purchasing gold, you might want to switch to digital, with a little gold that works better for you.
Frequently Asked Questions (FAQs)
How long do SGBs last?
8 years, with the option of quitting after the fifth year.
What kinds of returns are available from SGBs?
Every six months, you receive 2.5% annual interest in addition to the appreciation of the price of gold.
Are SGBs subject to taxes?
Interest is taxable, but capital gains are tax-free if held till maturity. If sold on stock exchanges after holding for more than 12 months, a 12.5% long-term capital gains tax applies without indexation benefit.
Is it possible to trade SGBs before they mature?
Although their liquidity may vary, they are listed on stock exchanges.
Is it still possible to invest in SGBs?
As of FY25, no new SGBs are being issued; however, you can still buy existing ones on the secondary market.
