Sovereign Gold Bonds (SGBs) are government securities issued by the Reserve Bank of India on behalf of the Government of India, denominated in grams of gold. They're designed as a paper substitute for holding physical gold.
How the value is set
The bond's value tracks the market price of gold. At issuance, the price is calculated as the average closing price of 999-purity gold over the last three business days of the week preceding the subscription period, as published by the India Bullion and Jewellers Association.
What makes SGBs different from physical gold
- Fixed interest — SGBs pay a fixed annual interest rate (paid semi-annually) on the initial investment amount, on top of any change in gold's market price. Physical gold pays no interest.
- No storage risk or making charges — held in demat or certificate form, with no locker rental and no jeweller's making charges.
- Purity is not a question — the bond's value is tied to gold price, not to a physical item that needs to be assayed for purity.
Tenure and exit options
SGBs have an 8-year tenor. Early redemption is permitted from the 5th year onward, on RBI-specified redemption windows. If the bond is listed, it can also be sold on the stock exchange before that, subject to available liquidity and prevailing market price (which may differ from the gold-linked issue price).
Taxation, in brief
Capital gains on redemption at maturity (after the full 8-year tenor) are exempt from tax for individual investors. If sold earlier — either through early redemption or on the exchange — different capital gains rules apply. The semi-annual interest is taxable as "income from other sources" regardless of when the bond is eventually redeemed.
SGBs are issued in periodic tranches announced by the RBI, so availability is not continuous — it's worth checking the current subscription window before planning around a specific date.
