Sovereign Gold Bonds vs Physical Gold

SGBs not only provide a fixed interest rate of 2.5%, which is paid half-yearly, but you also enjoy capital appreciation as the market value of gold increases over the period of 8 years.

SGBs reflect the domestic gold prices, which are steadily rising in the long term.

Gold investments have offered high yields and generally beat the prevailing inflation rates. Countries and individuals start accumulating gold in times of economic uncertainty. Gold has shown a CAGR (Compounded Annual Growth Rate) return of around 13.5%, more than the interest offered on FDs.

After completing the lock-in period of 5 years, investors can easily sell SGBs on the stock market or redeem them with the RBI.

For short-term investors, the volatile nature of gold can be damaging. SGBs reflect the domestic gold prices. If the gold prices fall, your investments will suffer.

SGBs have a lock-in period of 5 years, after which you are allowed to sell the bonds on the stock market.

At maturity, the average gold price over the last three days prior to redemption is used to calculate the closing price of gold in SGBs.

You can walk into any jewellery shop and purchase gold jewellery, coins, or bars. Unlike SGBs, there is no window within which you have to purchase gold.

Physical gold is considered highly liquid as it can be sold anytime to any jeweler. In case of financial emergencies, you can sell your gold in exchange for cash.

When you buy physical gold, you might keep it at home or in bank lockers. There is a high risk of theft when you own physical gold.

You don’t earn any interest or returns on physical gold. You can make a profit only from the sale of gold.

When you buy jewellery, you pay for the jeweler’s making charges as well. At the sale of this jewellery, you receive only the value of the gold and are not compensated for the making charges and tax involved.