SGB is the best way to invest in gold. Where and how to buy.

Gold has seen a sharp rise in prices recently, rekindling investor interest in the precious metal. While it may not match equities in long-term wealth creation, gold continues to serve a meaningful role as a portfolio diversifier and hedge.

So, how do you invest in gold? Among all the ways—physical gold, exchange-traded funds (ETFs) , mutual funds , digital gold— sovereign gold bonds (SGBs) stand out for multiple reasons.

Issued by the Reserve Bank of India and backed by the government of India, SGBs provide a guaranteed 2.5 per cent interest over and above the change in the prices of gold. Additionally, if held till maturity, the capital gains are tax exempt.

That said, the RBI hasn't launched any new tranches after February 2024. And going by various media reports, fresh tranches are unlikely to be launched in the near future.

So, if you want to invest now, the only option is to buy the existing gold bonds from the stock exchange.

That said, there are a few things you must consider before buying SGBs from the stock exchange.

Here's what you must check before buying

Hard to Buy or Sell Easily

The biggest issue with buying Sovereign Gold Bonds (SGBs) from the stock market is low trading activity. Many SGB series barely trade, and even the popular ones see only a few buyers and sellers each day. This can cause problems like:

• A big gap between the price you can buy at and the price you can sell at
  
• Trouble selling quickly when you need the money
  
• Being forced to sell at a lower price if the market isn't in your favour

Here's a snapshot of the top-10 SGB tranches based on their trading volume.

Most actively traded SGBs and how they are priced

Check the SGB's price before you pay

Sovereign Gold Bonds (SGBs) don't always sell at fair value. Sometimes, they trade at a premium (costing more than the actual gold price), and sometimes at a discount (cheaper than the gold price).

Before buying, compare the SGB's market price with the redemption value, which is the average gold price (999 purity) over the last 3 working days, as calculated by the RBI.

Why does this matter?

• Buying at a premium can reduce your returns
  
• Buying at a discount can boost your gains — and that's on top of the 2.5 per cent annual interest SGBs already pay

So always double-check the price. It could make a real difference to your profits.

Now that you know what to watch out for when buying SGBs on the exchange, let's address some common questions investors have regarding this subject.

Q: If I buy from the exchange, will I still get interest?
Yes. You'll get the remaining 2.5 per cent interest payouts on the fixed dates. But note, the interest is calculated on the issue price, not your purchase price.

Q: Are the capital gains still tax-free?
Only if you hold the bond till maturity (8 years from issue). If you sell on the exchange, after holding them for more than 12 months, gains will be taxed at 12.5 per cent. If sold within 12 months, gains will be added to taxable income and taxed as per the applicable income slab.

Q: Can I sell them on the exchange before maturity?
Yes, but liquidity may be poor and you could lose out by selling at a discount. Also, any capital gains will be taxed.

Q: Is there a limit to how much gold bonds I can buy?
Yes. You can buy SGBs equivalent to 4 kg of gold per fiscal year. This includes both primary and secondary market purchases.

Q: What if I die before maturity? Can my nominee claim them?
Yes. If the SGBs are in a demat account, your demat nominee can claim them. If there's no nominee, your legal heir can claim the bonds with the appropriate documents.

Final word

Buying SGBs from the exchange can make sense, especially when they trade at a discount. Also, ensure the bond has decent liquidity (unless you plan to hold it till maturity).

Also read: Can you do an SIP in SGBs?

This article was originally published on May 15, 2025.