Gold ETF v/s Sovereign Gold Bonds v/s Physical Gold

Gold ETF v/s Sovereign Gold Bonds v/s Physical Gold

Dear Readers,

We Indians have treasured gold since centuries, considered it valuable and bought the yellow shining metal irrespective of it’s soaring prices. Sure, it is a precious metal, precious enough to gift someone on a special occasion, but is it really good as an investment?

Over the years, many other investment opportunities have been introduced for investment through gold, Gold ETF and Sovereign Gold Bonds being one of the best option. Now what are Gold ETF and Sovereign Gold Bonds? Well, let us try to understand them through this article.

What are Gold ETF and Sovereign Gold Bonds?

Gold ETFs:

Gold ETFs i.e. Gold Exchange Traded Fund are listed and traded on the National Stock Exchange of India (NSE) and Bombay Stock Exchange Ltd (BSE) like a single stock of any company. Buying gold ETFs means you are purchasing gold in an electronic form. An investor can buy and sell gold ETFs just as they would trade in stocks. When we actually redeem Gold ETF we don’t get physical gold but the cash equivalent of the market price of the Gold.

When you invest in Golf ETFs, you get units representing physical gold in your Demat account, and these units can be traded like any other stock. The best part here is that value of gold can be invested in electronic form, with an assured safety unlike the physical gold.

Sovereign Gold Bonds:

As defined by the Reserve Bank of India, Sovereign Gold bonds are government securities denominated in grams of gold. The investors need to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The tenure of the Bond will be for a period of 8 years with exit option in 5th, 6th and 7th year, to be exercised on the interest payment dates. The interest on SGB is 2.5% p.a., payable semi-annually, based on the original value of investment. An investor is allowed is hold up to 4 kg of Sovereign Gold bonds, which values up to Rs. 1.2 Crores, leading to additional income of Rs. 3 Lakhs per annum. Also, the bonds, at the time of (after completion of 8 years) are exempt from Tax in the hands of the individual. However, if the bonds are transferred before 8 years, Long term capital gain is attracted, though Indexation benefit is provided to the investor.

What are the benefits of Investing in Sovereign Gold Bonds and GOLD ETFs over buying physical gold?

Some of the benefits of investing in SGB and Gold ETFs can be listed as follows:

  1. No risk of lower re-sale value: Generally the gold jewellery fetches a lower value at the time of sale as compared to Gold biscuits and coins. On the contrary, there exists no such risks in case of Gold ETFs and SGB.
  2. Risk of Theft: Physical gold and jewellery is always under a theft of robbery and misplacement. However, this risk is completely eliminated when it comes to Bonds and Units. Even if the documents are erroneously misplaced, the record with RBI and NSE/BSE would be kept safely, keeping your investments on your name intact.
  3. Purity of Gold: While purchasing physical gold, there always lies the question of purity of the gold. We need to check the hallmark stamp of Bureau of Indian Standards. This is not the case with Stocks and Government bonds.

Let us have a look at the table giving comparisons amongst the three opportunities.


Buying Limit

No lower Limit

Minimum 1 gram and Max 4 Kg for Individuals and HUF.

Minimum 1 gram and no upper limit

Lock In period


5 Years


Tax Implication

LTCG tax 20%( with indexation benefit), if held for 3 years and above, or as per tax slab if held for less than 3 years

No LTCG on redemption after 8 years, LTCG tax 20% ( with indexation benefit), if held for 3 years and above, or as per tax slab, interest rate applicable as per slab rate

LTCG tax 20%( with indexation benefit), if held for 3 years and above, or as per tax slab if held for less than 3 years

Special Benefit

Use a jewellery and get the investment benefit both.

Interest of 2.5% p.a. is credited to the investor on original investment, thus resulting in 20% gains over the period of 8 years.

Buy and sell anytime on exchange platform, it is highly liquid

Loan Facility

Loan against gold facility available at banks and FI.

Loan against bonds is available at banks and FI

No loan facility available against ETF Bonds.


Safety and purity concerns

Low liquidity

Compulsory DEMAT and sometimes low volume on a trading platform

Source: Money Control.

Well, the above mentioned facts would have surely clarified how these investment opportunities work. You may be left wondering as to which one is the best option, but the answer lies purely in your usage and need for Gold.

If there is any occasion coming up where you need to use physical gold, then it is feasible to invest in gold, however, if you wish to have Gold based investment, with no requirement of Physical gold in the near future, it is suggested to go for Bonds or ETFs.

To know more on investment Gold ETFs and Sovereign Gold Bonds, feel free to contact us at Richvik.


Download this post

Related posts


Dear Investors, It’s a known fact that Multi-baggers is a term used mostly in Equity stocks. “A multi-bagger is an investment that has gained several times its original value”. Each “bag” represents your entire original investment. A stock that doubles its price is called two-bagger while if the price...

Read More


Dear Readers, RichVik, in association with Aditya Birla Sun Life Mutual Fund, presents the ‘Bal Bhavishya Yojna’, where your fund grows with the inflation-beating returns and helps your child’s dream turn into a reality! Let’s ask our self that “Are we saving enough for our child’s Education?” Your...

Read More


Dear Readers, Often we come across attractive advertisements made by renowned Banks, Insurance Companies, unscrupulous wealth managers or bank officials, trying to sell, or rather, mis-sell their unattractive products (in terms of investment opportunities) to consumers. The main issues with such selling of products are: Firstly, they are not...

Read More

Give a Reply