How does an SGB compare with physical gold?

Blog | F&O43301Investing

Gold is deeply embedded in Indian culture and traditions, and is considered as a symbol of wealth, prosperity, and auspiciousness.

However, times have changed and so have the ways of investing in gold. While physical gold still remains a popular choice for many Indians, it also comes with several drawbacks such as high costs, storage risks, purity issues, and tax implications. Moreover, physical gold does not generate regular income.

That’s why many savvy investors prefer Sovereign Gold Bonds (SGBs), which are a modern and convenient way to invest in gold. SGBs are digital gold that track the price of gold and offer several benefits such as regular income, tax exemption, sovereign guarantee, and lower transaction costs.

In this blog post, we will compare SGBs with physical gold. And we will also highlight the benefits of investing in SGBs.

What are the benefits of SGBs over physical gold?

SGBs offer several advantages over physical gold, such as:

  • No storage costs: Physical gold requires safe custody, which can be expensive and cumbersome. SGBs eliminate these hassles and ensure security and purity of gold.
  • No making charges or GST: Physical gold involves making charges and GST, which can reduce the returns on investment. SGBs have no such charges or taxes, making them more cost-effective.
  • Regular income: Physical gold does not generate any regular income. SGBs provide a steady interest income every six months, enhancing the returns on investment.
  • Indexation benefit: Physical gold attracts long-term capital gains tax at 20% with indexation benefit if held for more than three years. SGBs also enjoy indexation benefits if transferred before maturity, reducing the tax liability.
  • Sovereign guarantee: SGBs are issued by the RBI on behalf of the Government of India, which makes them a safe and secure investment option.

Why choose SGBs over physical gold?

SGBs are a smart and convenient way to invest in gold without the hassles and costs associated with physical gold. They have the potential of offering better returns, lower taxes, and greater security compared to physical gold. They also help in diversifying the portfolio and hedging against inflation and currency risks.

If you are looking for a long-term investment in gold with regular income and sovereign guarantee, SGBs are the best option for you.


Physical gold vs SGBs

Particulars SGBs Physical Gold
What is it? Government security valued gold Tangible metal
Lock-in 8 years tenor. Option to exit after 5 years No lock-in
Expense Ratio N.A. Making charges and GST
Pre-tax annual returns 9.5% (2.5% interest payout and 7.0%* gold appreciation) 7.0%* (gold appreciation only)
Taxes Interest taxed at slab rate
No capital gains tax on maturity No GST
No interest income
Long-term capital gains tax at 20% with indexation benefit
GST at 3%
STT at 0.1%

*Assuming gold price increased by 10% in a year.

How to buy SGBs with Upstox?

Upstox is one of the leading online platforms on which one can buy SGBs with ease and convenience. You can buy SGBs with Upstox by following these simple steps:

  • Open a trading and demat account with Upstox by filling out an online form and submitting your KYC documents.
  • Log into your activated Upstox account using your user ID and password.
  • Find the SGB section under the 'Invest' tab on your dashboard.
  • Select your preferred SGB tranche by clicking the 'Apply' button.
  • Check all relevant details, such as issue price, interest rate, and discounts.
  • Decide on the quantity of gold to buy, with a minimum of 1 gram and a maximum of 4 kilograms per fiscal year.
  • Choose your preferred payment method - UPI, net banking, or debit card.
  • Review and confirm all order details, then click the 'Place Order' button.
  • Receive an order confirmation via your registered mobile number and email ID.
  • The allotment will be completed within 10 working days of subscription.
  • Check your allotment status on your Upstox account or the RBI's website.

Buying SGBs with Upstox is fast, easy, and secure. You can also enjoy a discount of Rs 50 per gram if you apply online and pay digitally. You can also track the performance of your SGBs on your Upstox account and sell them on stock exchanges if you wish to exit before maturity.


SGBs are a great way to invest in gold without compromising on quality or convenience. It is a safe and smart choice for investors who want to diversify their portfolio and hedge against inflation and currency risks.

However, you should also be aware of the limitations of SGB such as lock-in period and market risks. 


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