Definition
Sovereign Gold Bond (vs Gold ETF)
A Sovereign Gold Bond is a government security denominated in grams of gold that pays periodic interest and tracks gold prices, offering an alternative to gold ETFs for gold exposure.
Issued by the RBI on behalf of the Government of India, SGBs pay a fixed interest rate on the invested amount and redeem at the prevailing gold price, with capital gains on redemption at maturity being tax-exempt for individuals. They suit long-term holders willing to lock in for the tenure.
Compared with a gold ETF, SGBs add interest income and a tax advantage at maturity but lack the ETF's easy intraday tradability and continuous liquidity (secondary-market SGB trading is thin). Investors choose between them based on holding horizon, the need for liquidity, and the value of the interest and tax benefits.
Related terms
- Fund of Funds ETFA fund of funds (FoF) is a mutual fund scheme that invests in units of other funds or ETFs rather than directly in securities, often used in India to give domestic investors access to ETFs without a demat account.
- Silver ETFA silver ETF is an exchange-traded fund that holds physical silver and tracks domestic silver prices, allowing investors to take silver exposure in dematerialised, exchange-traded form.
- Commodity ETFA commodity ETF provides exposure to physical commodities or commodity prices, such as gold and silver in India, through an exchange-traded structure rather than direct purchase of the physical asset.
- Gold ETFA Gold ETF is an exchange-traded fund that tracks the price of physical gold, letting investors buy and sell gold exposure on the stock exchange in demat form.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.