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A Sovereign Gold Bond is a government bond whose value is denominated in gold. The RBI issues it on behalf of the Government of India, you pay rupees at the current gold price, and at the end of 8 years you get back rupees equivalent to the prevailing gold price, plus 2.5% interest annually along the way. The entire capital gain at maturity is tax-free. It was, for years, the cleanest way to own gold in India.
Before getting into mechanics, one important fact upfront: the RBI suspended new SGB issuances in 2024. No new tranches have been announced since. If you want to invest in SGBs today, you have to buy existing series from the secondary market on BSE or NSE. The instrument still exists and functions, you just cannot buy fresh from the government anymore.
How SGBs were structured
The RBI used to issue SGBs in multiple tranches each financial year, typically six to eight tranches, each open for a week. The issue price was based on the average of the closing price of 999-purity gold for the three business days before the subscription period, published by the India Bullion and Jewellers Association (IBJA). Online purchases got a ₹50 per gram discount on this price.
You could buy a minimum of 1 gram and a maximum of 4 kilograms per financial year as an individual. Hindu Undivided Families (HUFs) had the same 4 kg cap. Trusts and similar entities could hold up to 20 kilograms.
The bond was credited to your Demat account. It carried ISIN numbers and was listed on BSE and NSE, typically within a few weeks of issuance.
The interest
Every six months, 1.25% of the original issue price (totalling 2.5% annually) is credited to your bank account. This is not calculated on the current gold price, it is on the price you paid when you subscribed. So if you bought at ₹5,000 per gram and gold is now ₹8,000, you still receive interest on ₹5,000.
This interest is taxable at your income slab rate. It gets added to your income for the year. The tax-free component in SGBs is only the capital gain, not the interest.
For many people, 2.5% looks small. But combine it with gold appreciation and zero capital gains tax at maturity, and the total return becomes quite attractive compared to other gold holding methods. I discussed this in detail in my post on gold investing.
Maturity and redemption
The SGB has an 8-year tenure. At the end, the RBI pays you the redemption value based on the simple average of the closing gold price (999 purity) for the three business days before maturity. The entire gain from the original issue price to this redemption price is exempt from capital gains tax.
This is the key structural advantage of SGBs over every other gold investment option. A Gold ETF held for 8 years is taxed at 20% LTCG on the gain. Physical gold held for 8 years is also taxed at 20% LTCG. The SGB held to maturity, zero.
Premature redemption
You can exit before 8 years, but with conditions. Premature redemption is allowed only after 5 years, and only on the interest payment dates (coupon payment dates). You have to submit a request to the bank or agent through which you originally subscribed.
The important tax point: premature redemption attracts LTCG tax at 20% with indexation. You lose the tax-free benefit that comes with holding to full maturity. Whether that matters depends on your situation, sometimes exiting early and paying some tax is still better than being locked in for 3 more years.
Secondary market trading
SGBs are listed on BSE and NSE, and you can sell them any time during market hours, not just on coupon dates. But secondary market liquidity for SGBs is often thin. Bid-ask spreads can be wide, particularly for older series. You may not always be able to sell at fair value quickly.
Capital gain on a secondary market sale is also not tax-free, it attracts LTCG at 20% with indexation (if held more than 24 months) or STCG at slab rate (if held less). The tax-free exit only applies to redemption with the RBI at maturity, not to selling on the exchange.
What to do now that new issuances are suspended
The RBI suspended new SGB tranches in 2024 without officially stating whether this is permanent. No announcement has confirmed the programme is permanently ended, but no new tranches have been issued either. This creates a few options for investors:
First, you can buy existing SGBs on the secondary market. Multiple series are still trading on BSE and NSE. Some trade at slight premiums to the current gold NAV, some at discounts, depending on the series and remaining maturity. If you find a series at or near fair value with 4–5 years to maturity, the tax-free exit and interest payments may still justify buying over a Gold ETF.
Second, you can shift to Gold ETFs. For new gold allocation, a Gold ETF from a major AMC is now the most practical route. Fully liquid, tracks gold accurately, and available any day. The tax treatment is less favourable than SGB held to maturity, but you are not stuck with uncertain secondary market liquidity.
If and when the RBI resumes SGB issuances, fresh tranches would again be the preferred route. Watch the RBI calendar for any new announcement.
How to buy SGBs on the secondary market
You need a Demat account. Log into your broker platform (your broker, Groww, ICICI Direct, or any other). Search for SGB on BSE or NSE. You will see multiple series listed, each with an ISIN and a different maturity date. The price shown is in rupees per unit (which represents 1 gram of gold).
Before buying, check: what is the current gold price per gram, and what is the SGB trading at? If the SGB is trading at a significant premium, you are overpaying relative to just buying a Gold ETF. If it is at par or discount, it becomes interesting, you get the remaining interest payments and potentially a tax-free exit at maturity.
Also check the remaining maturity. An SGB with only 18 months to maturity has limited upside from the tax-free benefit. An SGB with 5–6 years remaining gives you a longer runway for gold appreciation to compound tax-free.
SGB vs Gold ETF, the numbers
I cover this in detail in my SGB vs Gold ETF comparison, but the core point is: an SGB held to maturity beats a Gold ETF on after-tax return. The magnitude of that advantage depends on how much gold appreciates and your tax bracket. For someone in the 30% bracket with significant gold appreciation, the difference can be substantial.
But this advantage only materialises if you hold to maturity. If you exit early through the secondary market, both instruments face similar LTCG treatment. The patience premium with SGB is real.
Who SGBs are ideal for
SGBs work best for investors with a genuinely long horizon, 8 years, who want gold exposure as part of their asset allocation and will not need the money before maturity. They also suit people in the higher tax brackets, because the tax-free maturity benefit is worth more to them in absolute rupees.
They are not ideal for investors who might need liquidity within 5 years, for people who find the secondary market navigation confusing, or for those investing small amounts where the complexity is not worth it.
Building a financial portfolio that generates real wealth over time involves understanding not just which instruments exist, but how they fit together. Gold’s role in a portfolio is not to be the engine of returns, it is ballast. Whether you hold that ballast through SGBs or Gold ETFs matters less than having the right amount relative to your equity holdings, which is where the compounding actually happens. More on that in my long-term wealth building post.
Frequently asked questions
Is the capital gain on SGB tax-free? Yes, if you hold to 8-year maturity and redeem with the RBI. Premature redemption after 5 years or sale on the secondary market attracts LTCG at 20% with indexation.
Are new SGBs available? The RBI suspended new SGB issuances in 2024. Existing series trade on BSE and NSE.
What if I need money before 8 years? Premature redemption is allowed after 5 years on coupon dates, with LTCG tax. You can also sell on the secondary market any time, with similar tax treatment and the added friction of thin liquidity.
How is the 2.5% interest taxed? It is taxed as income at your slab rate. Only the capital gain at maturity is exempt.
Can NRIs buy SGBs? NRIs are not eligible to invest in SGBs under FEMA regulations. Resident Indians, HUFs, trusts, universities and charitable institutions can invest.
If you already hold SGBs, keep holding to maturity, the tax-free exit is worth the wait. If you are buying now, check the secondary market carefully for series trading near gold NAV with decent remaining tenure, and use a Gold ETF for any new allocation where secondary market pricing looks stretched.
This post is for educational purposes only. It is not financial advice. Mohit Mehra is not a SEBI registered investment advisor. Please consult a qualified financial advisor before making investment decisions.