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Sovereign Gold Bonds (SGBs) vs Gold ETFs 

Gold bonds representation

Holding gold to preserve wealth has always been a popular strategy. But you have options besides holding physical gold to take advantage of the gold market. You can invest in gold without physically holding gold by shifting funds into Sovereign Gold Bonds (SGBs) and Gold Exchange Traded Funds (ETFs).  

But is it better to invest in SGBs or ETFs? 

Investors often ask this question, especially those curious about SGBs since the bond program was launched in 2015, so it is a newer form of investing in gold. The bonds can be purchased through nationalized banks, select private sector and foreign banks, designated post offices, the Stock Holding Corporation of India Ltd. (SHCIL), and authorized stock exchanges, either directly or through authorized agents. 

Can Americans Buy SGBs? 

For the most part, no. Entities or individuals who are non-Indian residents are not eligible. However, millions are eligible. Those who are eligible include individuals, Hindu Undivided Families (HUFs), trusts, universities, and charitable institutions who legally reside in India. 

Sovereign Gold Bonds (SGBs) and Gold ETFs Compared 

 Sovereign Gold Bonds (SGBs) Gold ETFs 
Type of Investment Government Securities ETF Tracks Price of Gold 
Form of Investment Bonds Traded on Stock Exchange 
Interest Income 2.5% per Annum  0% 
Capital Gains Taxed Only on Interest Payments Yes 
Max Investment 4 Kgs (20 Kgs for Entities) Unlimited 
Lock-in Period 5 Years 0 Years 
Tenure 8 Years 0 Years 
Liquidity Low High 
Additional Costs $0 Varies 
Third-Party Risk Nearly Zero Low 
Loan Collateral Yes Yes 
Chart comparing SGBs to ETFs. 

Sovereign Gold Bonds (SGBs): Why Buy 

There are advantages to buying SGBs over ETFs and physical gold. The first is that the bond is issued by the Reserve Bank of India (RBI) on behalf of the Indian government. Which means they are guaranteed unless something drastic happens within the government. Another big advantage is that you only must pay taxes on the interest paid to you, not the capital gains. You will also receive two interest payments per year, and you do not have to store and secure the gold or pay for shipping.  

There are a few disadvantages for certain investor types. To benefit from the bond, the investor must be capable of holding it through its entire tenure, which is eight years. You can request an early encashment after five years, but you will not receive the interest payments you would have earned if you had waited eight years. Some investors may be unable to hold the full duration or prefer a short-term option. 

Gold ETFs: Why Buy 

Flexibility. One of the main reasons to buy ETFs is that they are highly liquid, and there is no limit to how much you invest. There is no lock-in or tenure. And like SGBs, you do not have to store, secure, and ship physical gold. They also do not have premiums like physical gold.  

Disadvantages may include the risk of the gold market’s volatility. You will also pay some account management fees which may vary depending on the entity that manages your ETFs. 

ETFs and SGBs vs Physical Gold 

 ETFs and SGBs Physical Gold 
Premiums $0 % Over Spot
Physical Storage Not Required Required 
Security Not Required Required 
Shipping Not Required Often Required 
Chart comparing ETFs and SGBs to physical gold. 

How Much Gold Should I Hold? 

Most Indian financial advisors say a minimum of ten percent with a maximum of 15 percent. Once you own 15 percent in gold, you may choose to adjust your budget to other investment types. Whether you hold gold in physical form, SGB, or ETF, is up to you and your personal investment goals. 

2024-2025 Series 

As of June 10, 2024, the Reserve Bank of India has not announced the next tranche. 

We always suggest that you consult with your financial advisor before making significant financial decisions. 

Quick Guides to Investing

Step 1:

Why Buy Physical Gold and Silver?

If you are concerned about the volatility of the stock market, you’re not alone. The extreme highs and lows of the stock market often lead investors towards safe-haven assets, like bullion. Historically, the Precious Metals market has an inverse relationship with the stock market, meaning that when stocks are up, bullion is down and vice versa.

Step 2:

How Much Gold and Silver Should You Have?

This question is one of the most important for investors to answer. After all, experts suggest limits on how much of any types of investments should go into a portfolio. After deciding to purchase and own Precious Metals and considering how much money to allocate, one can then think about how much and what to buy at any point in time.

Step 3:

Which Precious Metals Should I Buy?

With the frequent changes in the market and countless Precious Metal products available, choosing investments can be difficult. Some want Gold or Silver coins, rounds or bars while others want products that are valuable because of their design, mintage or other collectible qualities. Also, collectors may shop for unique sets and individual pieces for their collections.

Step 4:

When to Buy Gold & Silver

After considering why, how much, and what Precious Metals products to buy, an investor’s next step is when to buy them. This decision requires an understanding of market trends and the impact of economic factors on precious metal prices.

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