Definition
Sovereign Gold Bonds (SGB)
Sovereign Gold Bonds are government securities denominated in grams of gold, offering gold-price returns plus a fixed interest, without holding physical gold.
Sovereign Gold Bonds (SGBs), issued by the RBI on behalf of the government, let you invest in gold in paper form. Their value tracks the price of gold, and they additionally pay a small fixed annual interest on the invested amount — an edge over physical gold or gold ETFs, which pay nothing.
SGBs have a multi-year tenure with an option to exit early after a lock-in via the exchange. A key benefit is that capital gains on redemption at maturity are tax-exempt for individuals, though the periodic interest is taxable. There is no making charge, storage cost or purity worry.
SGBs suit long-term investors who want gold exposure for diversification without the hassles of physical gold. Note that fresh issuances depend on the government's calendar and may not always be open.
Related terms
- Asset AllocationAsset allocation is the decision of how to divide your portfolio among major asset classes — such as equity, debt, gold and cash — based on your goals, horizon and risk tolerance.
- Gold LoanA gold loan is a secured loan where you pledge gold jewellery or coins as collateral to borrow money quickly.
- Capital Gains TaxCapital gains tax is the tax you pay on the profit from selling an asset such as shares, mutual funds, gold or property.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.