Sovereign Gold Bond Scheme (SGB)

Sovereign Gold Bonds are government securities denominated in grams of gold. They allow investors to gain exposure to gold without holding it physically, while also earning fixed interest.

What is the Sovereign Gold Bond Scheme?

Sovereign Gold Bond Scheme: The scheme was launched in November 2015 to reduce demand for physical gold and encourage investment through financial instruments.

SGBs are issued by the Reserve Bank of India (RBI) on behalf of the Government of India. Each bond represents a specified quantity of gold, with the basic unit being 1 gram.

The scheme has been issued through different tranches over the years. The RBI’s official SGB portal currently lists issuances up to 2023–24, along with redemption notices for existing bonds.

Who Can Invest in SGBs?

SGBs are available to resident individuals, Hindu Undivided Families (HUFs), trusts, universities and charitable institutions, subject to applicable rules.

Key Features of Sovereign Gold Bonds

Gold-Linked Value: The price of an SGB is linked to the market price of 999-purity gold, based on the prescribed IBJA benchmark.

Minimum Investment: The minimum investment is 1 gram of gold.

Investment Limit: Individuals and HUFs can invest up to 4 kg per financial year, while eligible trusts and similar entities can invest up to 20 kg. The annual limit also covers SGBs purchased from the secondary market.

Maturity: SGBs have an 8-year maturity period, with premature redemption permitted after five years on specified interest-payment dates.

Interest: SGBs carry a fixed interest rate of 2.5% per annum, payable semi-annually.

Trading: Existing SGBs can be traded on recognised stock exchanges, subject to applicable rules.

Collateral: SGBs can be pledged as collateral for loans, subject to the lender’s terms.

Taxation of Sovereign Gold Bonds

Interest Tax: Interest earned on SGBs is taxable under the applicable income-tax provisions.

Capital Gains at Maturity: The tax treatment changed from 1 April 2026. The capital-gains exemption on redemption at maturity is now available to an individual only when the SGB was subscribed at the time of original issue and held continuously until maturity.

This means an individual who purchases an SGB from the secondary market cannot claim this specific maturity redemption exemption.

Benefits of Sovereign Gold Bonds

No Physical Storage: Investors get exposure to gold without the costs and risks associated with storing physical gold.

Fixed Interest: SGBs provide 2.5% annual interest in addition to changes in gold prices.

Government Security: The bonds are issued by the RBI on behalf of the Government of India.

Loan Collateral: SGB holdings can be used as collateral, subject to applicable conditions.

Alternative to Physical Gold: The scheme provides a financial alternative to buying and storing physical gold.

Limitations of SGBs

Gold Price Risk: The market value of an SGB can decline if gold prices fall.

Liquidity Risk: Secondary-market prices and liquidity may vary, particularly when investors want to sell before maturity.

Long Maturity: The standard maturity period is eight years, although premature redemption is available after five years on specified dates.

Tax Conditions: The maturity capital-gains exemption now depends on original subscription and continuous holding until maturity.

Conclusion

Sovereign Gold Bonds: SGBs combine gold-linked returns with fixed interest and provide an alternative to physical gold. However, investors should consider gold-price risk, liquidity and the revised capital-gains rules applicable from 1 April 2026 before investing or purchasing existing SGBs in the secondary market.

FAQs

Q1. What is a Sovereign Gold Bond?
A government security linked to the price of gold and denominated in grams of gold.

Q2. When was the SGB Scheme launched?
It was launched in November 2015.

Q3. Who issues Sovereign Gold Bonds?
The RBI issues them on behalf of the Government of India.

Q4. What is the minimum investment in SGBs?
The minimum investment is 1 gram of gold.

Q5. What is the maturity period of an SGB?
The standard maturity period is 8 years.

Q6. What is the interest rate on SGBs?
SGBs offer 2.5% interest per annum, paid semi-annually.

Q7. Can SGBs be redeemed before maturity?
Yes. Premature redemption is allowed after five years from the date of issue on specified interest-payment dates.

Q8. Is SGB interest tax-free?
No. SGB interest is taxable under applicable income-tax rules.

Q9. Is capital gain on SGB maturity exempt from tax?
From 1 April 2026, the exemption applies to individuals who subscribed at the original issue and held the SGB continuously until maturity.

Q10. Does the maturity exemption apply to SGBs bought from the secondary market?
No. The 2026 amendment limits this exemption to qualifying original subscribers who continuously hold the bond until maturity.

Q11. Can SGBs be used as collateral for loans?
Yes, subject to applicable rules and the lender’s conditions.