Definition
Sovereign Gold Bond (SGB)
A Sovereign Gold Bond is a government security denominated in grams of gold, issued by the RBI, that tracks gold prices and pays a fixed rate of interest on the invested amount.
An SGB lets you invest in gold without holding physical metal. Issued by the RBI on the government's behalf, each bond is denominated in grams of gold, so its value moves with gold prices, and it additionally pays a fixed interest on the original investment value, periodically.
SGBs carry a maturity (with an early-exit window after a few years), and capital gains on redemption at maturity have historically been tax-exempt for individuals — a major advantage over physical or digital gold. The interest, however, is taxable.
SGBs combine gold-price exposure, interest income, sovereign backing and tax efficiency, making them a favoured way to hold gold for the long term, though liquidity before maturity can be limited.
Related terms
- REITA Real Estate Investment Trust is a SEBI-regulated, listed vehicle that owns income-generating commercial property and passes most of its rental income to unitholders as distributions.
- RBI Retail DirectRBI Retail Direct is a scheme that lets individual investors directly open an account with the RBI to buy and hold government securities without an intermediary.
- Digital Gold vs SGBDigital gold is online-bought, vault-stored physical gold, while a Sovereign Gold Bond is a government security tracking gold's price that also pays interest; they differ sharply in risk and tax.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.