What is a Sovereign Gold Bond (SGB) and is it still issued

What made the SGB different from physical gold

A Sovereign Gold Bond is issued by the Reserve Bank of India on behalf of the Government of India, and each bond is denominated in grams of gold. Its value tracks the market price of gold, so if gold rises, the redemption value rises with it. The feature that set the SGB apart from every other way of holding gold was that it paid a fixed interest of 2.5% per annum on the original investment amount, credited to your bank account every six months. Physical gold, gold ETFs, and digital gold pay no interest at all, so the SGB effectively paid you to hold gold.

The SGB also removed the headaches of physical gold. There were no making charges, no purity worries, no storage or locker costs, and no risk of theft, because the holding was a government security held in your demat or in the RBI's records. The bond had an 8-year tenure, with an option for early redemption from the fifth year on interest-payment dates. This combination of gold-price exposure, an interest coupon, and no holding hassle made it one of the most efficient gold instruments available to Indian investors while it was being issued.

The tax advantage and why issuance stopped

The standout tax benefit of the SGB is that the capital gain arising on redemption at maturity is exempt from capital gains tax for an individual investor, provided the bond is held to maturity. That is a meaningful edge, since gains on physical gold and gold ETFs are taxable. The 2.5% interest, however, is taxable as income at your slab rate, so the exemption applies to the gold-price gain at maturity, not to the interest. Gains from selling the bond on the exchange before maturity follow the normal capital-gains rules rather than the exemption.

Despite its popularity with investors, the government discontinued fresh SGB issuance, with the last tranche opening to subscription in February 2024. The reason was cost: as gold prices climbed, the scheme became an expensive way for the government to borrow, because it had to repay the appreciated gold value plus pay 2.5% interest along the way. The decision affected only new issuance. Every SGB already issued continues exactly as before, paying interest and running to its maturity, where the maturity gain remains tax-exempt for individuals.

What this means for you now

If you already hold SGBs, nothing changes. You keep receiving the half-yearly interest, you can still redeem early on the eligible dates or sell on the exchange, and the maturity redemption still carries the capital-gains exemption for individuals who hold to maturity. There is no reason to act hastily just because new issuance has stopped.

If you want fresh gold exposure now that SGBs are no longer issued, the alternatives are gold ETFs and physical or digital gold, none of which pay interest or offer the SGB's maturity tax exemption. Existing SGBs sometimes trade on the secondary market, but liquidity can be thin and prices may diverge from the underlying gold value, so a secondary-market purchase does not always replicate the benefits of holding a bond from its original issue. Understanding the SGB still matters because many portfolios hold them, and knowing the interest, tenure, and tax rules lets you manage that holding correctly.

SGB compared to other ways of holding gold

Ranking the gold options clarifies why the SGB was special. Physical gold (jewellery, coins, bars) carries making charges, purity and storage concerns, and a gap between the buy and sell price at the jeweller, and it pays nothing while you hold it. Digital gold sold through apps lets you buy small amounts backed by physical gold, but it carries a spread and platform charges and, again, pays no interest. Gold ETFs are units that track the gold price, trade on the exchange, need a demat account, and charge a small expense ratio, with no interest income.

The SGB sat above all of these while it was issued, because it combined gold-price exposure with a 2.5% interest coupon and a maturity tax exemption that none of the others offer. Now that issuance has stopped, an investor choosing fresh gold exposure trades down to the next-best option, usually a gold ETF for its liquidity and low friction. The lesson the SGB leaves behind is what an efficient gold instrument looks like: price exposure, an income on top, low holding cost, and a favourable tax outcome. Judge any future gold product against that benchmark.

FAQ4 reader questions · AEO-eligible

Common questions on sovereign gold bond.

Keep learning

Adjacent concepts every Indian retail investor should have straight.