Gold is one of the most preferred investment options as it works as hedge against inflation. In recent years, it has been seen that people are shifting from physical gold to alternate form of investing in gold; Sovereign Gold Bond (SGB) and Gold ETF (GETFs). Given below we have highlighted difference between SGBs and GETFs

Sovereign Gold Bond

Lock-in

• Though Sovereign Gold Bond has maturity period of 8 years, it can be redeemed prematurely on coupon payment dates after the 5th year from the date of issue. SGBs are also tradable on exchanges and can be sold in the secondary market but their liquidity is limited.

Interest Rate

• 2.5% per annum (payable semi-annually)

Capital Gains Tax

• No capital gains tax on appreciation if held to maturity.

Expense Ratio

• No Expense Ratio

Maximum Limit

• 4kg for each family member

Gold ETF

Lock-in

• There is no lock-in period for GETFs

Interest Rate

• None

Capital Gains Tax

• Long Term Capital Gains are taxed after 3 years with indexation benefit available and short-term gains are taxed as per income tax slab rate.

Expense Ratio

• GETFs have an expense ratio of 0.5%-1%

Maximum Limit

• No Limit

When it comes to cost, liquidity, and taxation, Gold ETFs and Sovereign Gold Bonds each have their own advantages and disadvantages. SGBs are a great investment with a longer-term investment perspective. The interest income plus the capital gains tax benefit ensures opportunity to create big gains when held till maturity. Gold ETFs are suitable if liquidity is your primary priority, and you have a short-term view on the price of Gold.

Sovereign Gold Prices tradeable on exchange can be checked on Sovereign Gold Bonds (SGB) & Schemes 2018-2019 – NSE India