Sovereign Gold Bonds vs Physical Gold: Which one is better and why?

Since time immemorial, gold has been one of the most coveted possessions and has been traditionally serving as a security against financial uncertainties.  Gold possession is a strong symbol of the financial support system and thus investing in it is quite prevalent across India. Though paper and digital gold investments have been gaining popularity over the years compared to physical gold, still many people prefer to possess gold jewellery, coins and bars.  

Both physical and non-physical forms of gold differ in terms of a number of factors, including value appreciation and return on investment, among others.  

While physical forms can be counted as jewellery, coins, and bars, paper gold comes in the form of Sovereign Gold Bonds (SGB), Gold Exchange Traded Funds (ETF), and Gold Mutual funds.

If you are willing to invest in gold, it’s important to consider several factors before choosing between Sovereign Gold Bonds and physical form of gold.

Sovereign Gold Bonds vs Physical Gold: Distinctive features

Cost-effective: Sovereign Gold Bonds are considered to be a lot more cost-effective in comparison to physical gold. When a person buys and sells jewellery, there is a chance that the investor may face a loss of 15-20 per cent in making charges each time. However, when held in paper form, the hassles of maintenance and any depreciation in value can be largely avoided. The value of SGBs are always linked to the current market price of gold and whenever you want to liquidate the bond, you will receive the value without any other charges.

Interest Rate: While holding gold in the form of SGBs will help investors earn interest rate, there is no assured income when it comes to physical form. An investor can only gain when the market price of gold goes up.

Tax efficiency: One of the major things to remember is that Sovereign Gold Bonds are relatively more tax-efficient compared to physical gold.

Liquidity: While physical gold is available at real-time gold prices with a total liquidity option, SGBs are only available in tranches and exit is possible after the lock-in period of 5 years. In this case, physical gold definitely gains an edge over SGBs to meet any financial emergencies. While gold in its physical form can be liquidated and easily sold in times of financial crisis, this is not the case with SGBs.

Considering these factors, one can make a decision to choose between physical gold and Sovereign Gold Bonds for investment based on their financial goals. Also, the choice has to be made on the basis of the time frame for which one can stay invested in the chosen instrument.