How Does an SGB Compare With a Gold ETF?

If you're new to precious metal investment, you might be unsure of the differences between these two approaches and which is best for you. In this post, we'll highlight the main difference between SGB and gold exchange-traded funds, weigh the benefits and drawbacks of each, and arm you with all the knowledge you need to make an educated choice. So, let’s learn about gold MF vs ETF or Gold ETF vs SGB in detail

What is Gold ETF?

An exchange-traded fund, or ETF, that monitors the price of actual gold is called a gold ETF. These funds are managed passively and often invest in gold futures or bullion. On exchanges, they are traded in real-time. Gold ETFs buy 99.5% pure gold from Reserve Bank of India (RBI) approved banks. One gm of gold is equal to one unit of gold ETF. The gold pricing entails no additional expenses.

The mutual fund custodian receives gold that the manager has bought and deposited. Gold ETFs have the same price and return characteristics as real gold. Moreover, buying a gold ETF is less expensive. Additionally, investing in physical gold is simpler with gold ETFs.

Advantages of Investing in Gold ETF

  1. Diversification
    Investors can easily diversify their investment portfolios by using gold exchange-traded funds (ETFs). Incorporating gold into an investment portfolio with stocks, bonds, and other assets allows investors to diversify their risk and perhaps lower total portfolio volatility
  2. Cost-Efficiency
    Buying and holding actual gold is usually more expensive than investing in gold exchange-traded funds (ETFs). Gold ETFs are an affordable way to get exposure to precious metals because they don't come with extra costs for storage, insurance, or security.
  3. Liquidity
    Due to the fact that gold ETFs are only traded on stock exchanges, investors can benefit from significant liquidity. This provides flexibility and the speed to modify investment positions by enabling investors to easily purchase and sell Gold ETF shares during market hours at current market prices.
  4. TransparencyInvestors may monitor their investment performance in real-time using gold exchange-traded funds (ETFs) since they offer transparent price and holdings information. Furthermore, because Gold ETFs are passively managed, investors might be more confident in them because of the regular disclosure of their holdings.
  5. Accessibility
    A broad spectrum of investors, including regular and institutional investors and those with low financial resources, can participate in gold exchange-traded funds (ETFs). Investors can begin small and progressively raise their investment over time, as there are no minimum investment criteria.
  6. Convenience
    When it comes to managing and investing, gold exchange-traded funds (ETFs) are convenient. The ease of trading stocks can be extended to investors by using their brokerage accounts to purchase and sell Gold ETF shares, eliminating the need to purchase, store, or insure gold metal physically.

What is SGB or Sovereign Gold Bond?

Gold-denominated government securities are known as Sovereign Gold Bonds (SGBs). The RBI is the entity that issues these debt instruments on behalf of the government. They were introduced in November 2015 as a substitute for real gold. SGBs can be purchased through authorized stock exchanges, post offices with specific designations, scheduled private and foreign banks, and branches of nationalized banks. Through the website of the approved bank, they can also make online investments. SGB interest rates are 2.5% annually. The government backs these bonds; therefore, the returns are assured. These bonds have an eight-year lifespan; after a five-year lock-in period, they can be sold on the stock exchange.

Advantages of SGB or Sovereign Gold Bonds

  • Safety and SecuritySGBs are among the safest investment options because the Indian government issues them. Due to the national guarantee supporting their investment, investors can feel secure about it.
  • Fixed Interest Income
    SGBs provide investors with a fixed interest rate on their investment, in contrast to actual gold, which does not yield any income. In addition to the possible increase in the value of gold, investors receive a consistent income stream from the semi-annual interest payment.
  • Capital Appreciation
    SGBs allow investors to profit from any gain in the price of gold during the bond's term because they mirror the metal's market price. As a result, investors may see a rise in the value of their investment through capital appreciation.
  • Liquidity
    Because SGBs are published on stock exchanges, investors have the freedom to purchase or sell their bonds at market values, thanks to their liquidity. Unlike real gold, which may entail finding a buyer and handling storage and transit concerns, this makes it simple for investors to exit their investment if necessary.
  • Tax incentivesSGBs provide investors with tax incentives, such as indexation advantages if sold after three years and concession from capital gains tax if held until maturity. In addition, SGB interest income is subject to taxation but qualifies for indexation benefits.

What is the Difference Between Gold MF vs Gold ETF?

The sovereign gold bond vs gold etf difference are as follows: -



Sovereign Gold Bonds (SGBs)

Gold ETFs

Nature of Investment

Government securities issued by the RBI.

Exchange-traded funds track the price of gold.

Form of Investment

Bonds are issued in the form of paper or digital certificates.

Units traded on stock exchanges, representing ownership of gold.


Typically, SGBs have a maturity period of 8 years.

No fixed tenure; investors can buy and sell units anytime.


Offers fixed annual interest (currently 2.5% per annum).

No interest; returns are based on the performance of gold.


Limited liquidity as SGBs can only be sold on stock exchanges.

High liquidity as units can be bought and sold in real-time.


No additional costs associated with purchasing or selling SGBs.

Usually, it lower costs compared to buying physical gold.


Interest earned on SGBs is taxable as per the investor's tax slab.

Capital gains tax applicable on redemption of units.


Backed by the Government of India, it is considered relatively secure.

Investments are subject to market risks associated with gold.

The Bottom Line

There are two easy and accessible ways to invest in gold: Sovereign Gold Bonds and Gold ETFs. However, the main things that differentiate them from one another are their investing strategies, liquidity, costs, and tax implications. When deciding between the two choices, it's critical for investors to take their investing goals and risk tolerance into account.

Frequently Asked Questions Expand All

Both Gold ETFs and SGBs are suitable for long-term investments. However, Gold ETFs may be a better choice if you prefer a more liquid option with low costs. On the other hand, SGBs can offer guaranteed returns and tax benefits if held till maturity.

Like any investment, both Gold ETFs and SGBs carry a certain level of risk. The value of ETFs can fluctuate based on the market price of gold, while SGBs are subject to interest rates and credit risks.

Yes, investors can redeem their units of Gold ETFs for physical gold by approaching the respective fund house.