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SGB

Investment

Sovereign Gold Bond

A government-backed bond denominated in grams of gold, issued by the RBI on behalf of the Government of India, paying a fixed annual interest on top of gold price appreciation.

Definition

A Sovereign Gold Bond (SGB) is a government-backed investment instrument issued by the Reserve Bank of India on behalf of the Government of India, denominated in grams of gold rather than rupees. Investors buy the bond at an issue price linked to the prevailing gold rate, and its value moves with gold prices over the bond's tenure — but unlike physical gold, an SGB also pays a fixed annual interest on top of any price appreciation.

This combination — gold price exposure plus a guaranteed interest stream — distinguishes SGBs from both physical gold (no interest, plus making charges) and digital gold (no interest at all). The Gold Investment Calculator models the price-appreciation component common to all forms of gold investment, though SGBs additionally earn the bond's fixed interest on top.

Formula

Total SGB Return = Gold Price Appreciation + (2.5% × Investment Amount × Years Held)

Capital gains on redemption at maturity (after the full 8-year tenure) are tax-exempt for individuals, while the periodic 2.5% interest is taxed as income each year it's paid.

Worked Example

An investor buys ₹1,00,000 worth of SGBs. Over 8 years, gold appreciates such that the bond's value grows to ₹1,80,000 at maturity.

Separately, the investor receives 2.5% annual interest on the original ₹1,00,000 investment, paid semi-annually — totalling ₹2,500 per year, or ₹20,000 over the 8-year tenure.

Total return = ₹80,000 (gold appreciation) + ₹20,000 (interest) = ₹1,00,000, on top of the original investment — with the ₹80,000 capital gain tax-exempt at maturity, while the ₹20,000 interest was taxed as income each year it was received.

Key Things to Know

  • Cash-settled, not physical gold: SGBs are redeemed in cash based on the prevailing gold price, not actual gold delivery.
  • 2.5% annual interest is the key differentiator: this is the one return component physical and digital gold don't offer.
  • 8-year tenure, 5-year exit window: early exit is only possible from year 5 onward, on specific interest payment dates.
  • Tax treatment differs by component: maturity capital gains are tax-exempt for individuals, but the periodic interest is taxed as income each year.

Related Calculators

Gold Investment Calculator →Calculate the future value and returns on a gold investment. Enter the amount, current gold price, and expected growth rate to see your projected gains.
Gold Loan Calculator →Calculate your gold loan eligibility and monthly EMI based on gold weight, current price, and loan-to-value ratio. Free EMI calculator for India.

Related Terms

SSYSukanya Samriddhi YojanaPPFPublic Provident Fund

Frequently Asked Questions

No — SGBs are settled in cash at maturity, based on the prevailing average gold price, not in physical gold. This avoids the storage and purity concerns that come with holding physical gold.
SGBs pay a fixed interest rate of 2.5% per annum on the initial investment amount, credited semi-annually to the investor's bank account, in addition to any gain or loss from the gold price movement itself.
SGBs have an 8-year tenure, with an early exit option available after the 5th year, exercisable only on the interest payment dates. They can also be traded on stock exchanges before maturity, subject to liquidity.
Capital gains on SGB redemption at maturity (after the full 8-year tenure) are exempt from tax for individual investors. The periodic 2.5% interest, however, is taxable as income in the year it's received, at the investor's applicable slab rate.
Physical gold involves making charges and storage concerns; digital gold lets you buy and hold small amounts online backed by vault-stored gold; SGB is a government bond that tracks gold price and additionally pays a fixed 2.5% annual interest — a return digital or physical gold doesn't offer.