old remains a lucrative and trusted investment for wealth protection and portfolio diversification. The recent rally in gold prices clearly underscores its importance as an investment instrument. Still, investors today face a crucial challenge: How should they invest in gold?
Investing in gold is likely through sovereign gold bonds (SGBs), gold coins and bars, digital gold, gold ETFs, among others.
For investors looking to make additional returns on gold apart from appreciation in value, sovereign gold bonds are a lucrative option as they offer an additional return when bonds are held till maturity. Unlike physical gold, which can be sold instantly for cash, SGBs are less liquid due to lock-in periods and limited trading options.
Both options have unique attributes, pros and cons and tax implications. Due to the same, they demand a careful look at current returns, liquidity, past performance analysis, and regulatory impact for informed investment decisions.
Earning more than just appreciation
SGBs backed by the Reserve Bank of India (RBI) and sold through banks and brokers are investment options that stand out for annual returns. Holders earn a fixed 2.5% interest per annum in addition to the underlying gold price gains.
Amid recent geopolitical situations, such as the ongoing Trump tariffs, the Russia-Ukraine war, and other associated issues, investing in SGBs can be a fairly prudent option.
Physical gold, on the other hand, whether coins, bars, or jewellery, offers only price appreciation with no promised annual yields. In the year 2025, SGBs have delivered more than 240% cumulative returns since inception. This is a reflection of both capital appreciation and the impact of compounding on interest.
Important points for investor consideration
- SGBs provide 2.5% annual interest along with the price gains made on gold.
- If you are a long-term SGB holder, you will enjoy tax-free capital gains after an eight-year holding period.
- Physical gold is instantly liquid at local outlets. Still, it is subject to marking charges, processing fees, and GST.
- SGBs ensure that the stress of storage, theft, and misappropriation is eliminated.
- Minimum investment for SGBs is one gram, whereas physical gold purchases often incur premiums and charges.
SGBs vs Physical Gold: Security, liquidity, and tax efficiency
Physical gold provides smooth and seamless liquidity. It can be easily sold at any local jewellery store or dealer. Still, prices can fluctuate. The gold prices averaged ₹10,244 per gram (24K) in major cities of the country as of August 2025. This clearly marks a steady upward trend.
SGBs, meanwhile, are traded on stock exchanges, offering secondary market liquidity, but may still reflect lower volumes.
Safety, storage issues are a serious concern with physical gold, but SGBs, held electronically like shares in demat accounts, are free from purity worries and the possibility of theft.
Optimising tax outcomes
SGBs are more tax-efficient, especially for long-term holding periods. While the annual interest is taxable, capital gains on redemption after eight years are exempt. On the other hand, physical gold attracts long-term capital gains tax and GST on purchase. This results in bringing down net returns, especially for regular investors or traders who trade in physical gold.
Therefore, before going ahead with any particular asset for investment as a prudent investor, you should always consider having a fair discussion with a certified financial advisor to achieve desirable investment outcomes.
Disclaimer: This information is for educational purposes only and does not constitute financial advice. Investments in SGBs and physical gold carry risks, and past performance is no guarantee of future results. Readers are advised to consult a certified financial advisor before investing.
