With the Sovereign Gold Bond (SGB) scheme no longer issuing new tranches, many investors must be evaluating their options. While SGBs offered a unique blend of gold exposure and fixed returns, existing investors must now decide whether to hold or explore alternatives.
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What should existing SGB investors do?
Trivesh D, COO of Tradejini, advises a strategic approach, “Holding SGBs until maturity can be beneficial due to the 2.5% annual interest and tax-free capital gains if held to term. But if you need quick cash or better opportunities arise, selling in the secondary market is worth considering. Before you decide, take a good look at your long-term plans, how much money you need right now, and what’s happening in the market.”
Best alternatives for gold investment
While new SGBs are no longer available, several alternatives still exist.
“Gold ETFs stand out as an excellent investment solution because they combine ease of use with high liquidity,” Trivesh says.
For those prioritising traditional security, physical gold remains an attractive option despite storage challenges.
Other alternatives include gold mutual funds and digital gold, which offer unique benefits in terms of accessibility and flexibility.
Another option is purchasing SGBs from the secondary market. However, as Trivesh points out, “Secondary market SGBs offer an additional choice, but they have liquidity problems when it comes to market sales. Conversely, silver bonds can offer diversification into several precious metals.”
Comparing gold ETFs, mutual funds and SGBs
One of the key benefits of SGBs was their 2.5% annual interest and tax-free capital gains if held to maturity.
However, they lacked liquidity in the early years.
Gold ETFs and mutual funds offer more flexibility in this regard.
Trivesh explains, “The taxation for long-term gold ETFs begins at 12 months with a rate of 12.5% without indexation, while mutual funds have the same long-term tax rate starting after 24 months. ETFs are exchange-traded, and mutual funds follow daily NAVs, giving higher liquidity. SGBs deliver fixed returns, unlike ETFs and mutual funds, which rely entirely on market price changes.”
Physical gold vs digital gold
With new SGBs no longer an option, should investors turn to physical or digital gold?
“The decision between digital and actual gold is, of course, subjective. In India, gold is frequently used as a status symbol and is important for major events, particularly for women,” says Trivesh.
Many people prefer physical gold due to traditional and cultural values, while those focused solely on returns and convenience opt for digital gold, which eliminates storage and security concerns.
Impact on India’s gold demand
Despite the end of new SGB issuances, gold demand in India is unlikely to be significantly affected. The country has a deep-rooted affinity for gold, particularly during weddings and festive seasons.
Trivesh highlights, “The growing investor interest and India’s long-standing passion for gold are clearly reflected in the rise of gold ETFs, which climbed from ₹460 crore in 2022 to ₹9,225 crore in 2024. Despite SGBs offering an alternative investment option, gold ETFs and physical gold remain accessible.”