SGB VS Gold ETF VS Physical Gold

SGB VS Gold ETF VS Physical Gold
SGB VS Gold ETF VS Physical Gold

by Tanushree Jaiswal Last Updated: Aug 31, 2023 - 05:41 pm 200 Views

Investing in gold has long been considered a safe haven during economic uncertainties, inflation, and geopolitical tensions. Traditionally, physical gold was the go-to option, but with evolving financial markets, investors now have access to alternative forms of gold investment. In this article, we'll delve into the key features of three prominent gold investment avenues: Physical Gold, Gold ETFs, and Sovereign Gold Bonds.

Physical Gold

Physical gold, cherished for its tangible and emotional value, holds a significant place in Indian culture. It's a symbol of security, passed down through generations.

Holding physical gold offers several benefits, including:

  • Tangible Security: Physical gold provides a sense of security and acts as collateral during emergencies.
  • Liquidity: Gold's liquidity is high; it can be sold easily when needed.
  • Inflation Hedge: It serves as a hedge against inflation, maintaining its value during economic downturns.
  • Diversification: Gold acts as a portfolio diversifier, reducing overall risk.
  • Long-Term Wealth Creation: Over time, gold has shown the potential for wealth creation.
  • Cushion Against Currency Depreciation: Gold's value often rises when currencies weaken.

However, there are downsides to physical gold

  • Storage Costs: Storing physical gold, whether in bank lockers or as ornaments, incurs costs.
  • Making Charges: Ornamental gold involves additional making charges.
  • Risk of Theft: Physical gold is susceptible to theft.
  • Varied Prices: Gold prices vary across regions and establishments.
  • Purity Concerns: Ensuring gold's purity can be challenging.

Gold ETFs (Exchange-Traded Funds)

Gold ETFs offer a digital way to invest in gold. These funds are traded on stock exchanges, tracking the domestic gold price.

Benefits of Gold ETFs include:

  • Ease of Trading: Gold ETFs are bought and sold like stocks on stock exchanges.
  • Tax Efficiency: Tax benefits are available, and there are no making charges.
  • Transparent Prices: Real-time prices are readily accessible.
  • Security: Units are held in demat form, eliminating theft risk.
  • Collateral for Loans: ETFs can be used as collateral for loans.

However, Gold ETFs are not without risks:

  • Market Sensitivity: Prices are influenced by market performance.
  • No Physical Gold: Upon redemption, you receive cash, not physical gold.

Sovereign Gold Bonds (SGBs)

SGBs are government securities denominated in grams of gold. They provide an alternative to holding physical gold. 

Key advantages of SGBs are:

  • Market-Linked Returns: Investors benefit from market price changes at redemption.
  • Elimination of Storage Costs: No need for physical storage.
  • Interest and Maturity Value: Periodical interest and assured market value on maturity.
  • Tax Benefits: Exemption from capital gains tax upon redemption.

However, SGBs come with certain considerations:

Potential Capital Loss: Market price decline might lead to capital loss.
Taxation: Interest on SGBs is taxable, though capital gains tax on redemption is exempted.


Investing in gold offers stability in a volatile world, and each gold investment avenue caters to different investor preferences. Physical gold holds emotional and tangible significance but comes with storage and purity challenges. Gold ETFs offer ease of trading and tax efficiency but are subject to market fluctuations. Sovereign Gold Bonds combine market-linked returns with tax benefits and eliminate storage worries.

The choice among these avenues depends on an investor's risk tolerance, financial goals, and ease of investment. Regardless of the chosen avenue, gold remains a valuable asset for diversification and long-term wealth preservation. As with any investment decision, thorough research and consultation with financial advisors are essential.

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About the Author

Tanushree is a seasoned professional with 6 years of experience in the Fintech and Edtech industry.


Investment/Trading in securities Market is subject to market risk, past performance is not a guarantee of future performance. The risk of loss in trading and investment in Securities markets including Equites and Derivatives can be substantial.
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