What are Sovereign Gold Bonds (SGBs)? Meaning, Benefits, Price History, and More

Sovereign Gold Bond Schemes (SGBs) are government-backed securities. They allow people to invest in gold without physically owning it. Instead of buying gold, you purchase bonds issued by the Reserve Bank of India (RBI) on behalf of the government. These bonds have an eight-year term, but investors can exit after five years on specific dates. Upon maturity, investors receive cash based on the current gold price. Also, these bonds are listed on stock exchanges, which makes them easier to trade.
 

Notably, SGBs offer a 2.5% annual interest, paid every six months. The value on which interest is calculated is linked to gold prices. In this article, let’s understand the various benefits of investing in sovereign gold bonds and see who should invest in this scheme. Also, we will check the price history of SGBs starting from FY 2022-23.

• Sovereign gold bonds offer both annual interest (2.5%) and capital appreciation based on an increase in gold price.
  

• By investing in SGBs, you avoid extra costs like making charges and taxes on physical gold.

• Upon maturity, capital gains earned from SGBs are tax-free.

• SGBs are held in electronic Demat form. They are safe from loss or theft.

One of the biggest benefits of sovereign gold bonds is that there is no need to store physical gold. Generally, physical gold requires safekeeping, often in lockers, which come with charges and risks of theft. With SGBs, since they represent the value of gold but exist in electronic form, you completely avoid these storage issues. Other than this, let’s also check out more benefits of SGBs:

• Dual benefit of interest and capital appreciation
  SGBs offer a unique advantage over physical gold by providing you with interest. This interest is usually 2.5% per year and is paid directly to the investor. Moreover, at the end of the bond's maturity period (8 years), you receive the prevailing market value of gold.
  In this way, you enjoy the dual benefits of regular interest income and any price increases in gold.

• No extra costs
  Investing in physical gold (especially jewellery) involves extra costs like making charges and taxes. Also, there are concerns related to the purity of gold. With SGBs, these additional costs are avoided entirely, and there are no worries about the purity of the gold. This makes SGBs a cost-effective way to invest in gold, as all you pay for is the value of the gold itself.

• Tax-free gains
  SGBs are tax-free when redeemed at maturity. If you hold the bond for the full 8-year term, you do not have to pay any taxes on the profits you earn from gold price increases. This is different from selling physical gold, where taxes may apply. This tax exemption adds another layer of financial benefit and makes SGBs a tax-efficient investment option.

• Ease of trading
  SGBs are held in a Demat (electronic) form. This makes them easier to trade or transfer. Unlike physical gold, which can be misplaced or stolen, bonds stored electronically in your Demat account are secure. You can also trade sovereign gold bonds on the stock market if you need liquidity before the maturity period ends.

Sovereign gold bonds can be a good investment, especially if gold prices remain strong. Since SGBs have an 8-year maturity period, they are ideal for conservative investors who prefer long-term investments. Also, such investors should hold the bond until maturity to get the full benefits, such as tax exemptions on the final payout.
 

For short-term investors or those with a trading mindset, SGBs may not be suitable. Selling the bonds before maturity can result in capital gains tax, and it's possible you may not get a fair price on the exchange.

To better understand how sovereign gold bonds have performed over the years, below is a series-wise history of price per gram at which the scheme was launched in different periods:
 

FY 2022-23

FY 2023-24

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