Physical Gold | Sovereign Gold Bond | |
Meaning | Physical gold’s purity may or may not be 99.5%. | Sovereign Gold Bonds (SGB) are government securities linked to the highest purity (24 carat) of gold |
Price | Physical gold prices are not uniform. | The government determines the issue prise which is the average of 3 days price of 24 carat gold. Generally, a discount of Rs 50 is offered per gram on issue price. |
Lock-in period | No lock-in period | Five years lock-in period and maturity after 8 years. |
Investment | Gold biscuits or coins are available in the standard denominations of 10 grams. Hence, it requires a huge investment to invest in physical gold. | The Gold bonds are issued in units. One unit is equal to 1 gram. The minimum investment is 1 gram of gold, while the maximum limit is 4 kgs of gold per investor. |
Interest | No interest is paid | SGBs gives 2.5% p.a. interest on the initial value paid semi annually |
Storage | There is a storage cost (locker charges) and risk of theft associated with physical gold | The SGBs are kept in RBI Books and in Demat form so these remain safe as well as no storage cost. |
Collateral for loans | Can be used for loan against gold | Can be easily used as collateral for any type of loan. |
Taxation | The capital gains from a gold investment held for less than three years are taxable as per the investor’s income tax slab rates. For an investment withholding period of more than three years, the gains are taxable at 20% with indexation benefit. | The capital gains tax on redemption is zero. Also, the long-term capital gains come with indexation benefits. However, the capital gains for premature redemption are taxable similar to physical gold. |
Liquidity | One can easily buy physical gold from any bank or jeweller. They can be exchanged through a jeweller anywhere in the world. | One can trade their SGBs on the stock exchange any time after the date to be notified by RBI. After the five-year lock-in period RBI begin redeeming SGBs. |
Demat Account | Not required | Not mandatory. However, the investors have an option to hold their units in demat account. |
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