InvestmentFinancial Glossary
Sovereign Gold Bond (SGB)
Definition
A government-backed security denominated in grams of gold, issued by RBI on behalf of the Government of India. SGBs pay 2.5% annual interest on the issue price (semi-annually) and also provide returns linked to the market price of gold at redemption. The tenor is 8 years with an exit option from the 5th year.
Why It Matters
SGBs are the most tax-efficient way to invest in gold in India. Capital gains on SGBs held to maturity are completely tax-exempt. The 2.5% annual interest is additional income (taxable at slab rate). Compared to physical gold (making charges, storage risk, impurity risk) and gold ETFs (expense ratio, capital gains tax), SGBs are the clear winner for long-term gold allocation.