What are Sovereign Gold Bonds? Are they better than Mutual Funds & Fixed Deposits?

Sovereign gold bonds are an alternate investment option for physical gold. They let you hedge against inflation, free of the risk and costs associated with the precious metal. This means that a simple online investment can protect you from anticipated drops in the value of the rupee.

Sovereign gold bonds, along with mutual funds and fixed deposits, are a part of a diversified investment portfolio. All these investment vehicles play different roles. You can allocate funds in each depending on your risk profile, age and investment timeline to enable diversification and generate wealth.

Read on to know how sovereign gold bonds differ from other investments and how to determine its ideal allocation with regard to your financial goals.

How Do Sovereign Gold Bonds Work?

SGBs are a good option if you want to invest in gold without the hassle of safekeeping physical gold. These are government-backed bonds issued by the RBI against grams of gold, providing you with a 100% secure investment without the cost of storage or associated risk. Returns are directly linked to the price of gold, which significantly climbs over time and is less vulnerable to market fluctuations.

Generally, the RBI issues sovereign gold bonds every 2 to 3 months[EW2] , and you can subscribe to the scheme during a one-week window. Once subscribed, you get a holding certificate stating your investment. Currently, you can earn a guaranteed return of 2.5% p.a . for a fixed maturity period of 8 years, disbursed semi-annually.

Upon maturity, your investment will be valued according to the prevailing price of gold. This is done by calculating the simple average of the price of 999 purity gold for the last 3 days.

Sovereign Gold Bonds vs. Mutual Funds vs. Fixed Deposits

A sovereign gold bond is an extremely different investment vehicle as compared to mutual funds and fixed deposits. Whether it be the assurance of returns, nature of underlying assets, investment restrictions or other factors, you have to carefully consider the differences to determine where to invest your money.

This is how sovereign gold bonds, mutual funds and fixed deposits vary in their treatment of the following characteristics:


  Sovereign Gold Bonds Mutual Funds Fixed Deposits
Liquidity Low liquidity owing to the nature of investment: You can resell these in the secondary market only after 14 days of initial subscription[EW4] . Moreover, prices depend on the demand and supply in the stock market. Low to high liquidity depending on the type of mutual fund: For example, liquid funds are highly liquid and debt funds are apt for short-term parking of funds. Most mutual funds can be sold at any time. Highly liquid in the sense that you can ‘break’ the deposit at any time and receive funds in your account. However, there is a penalty for premature withdrawals.
Returns Assured returns as they carry a sovereign guarantee on the predetermined interest rate. The returns are less susceptible to market changes than mutual funds. Returns depend on the underlying assets and the risk rating of the fund. For example, equity funds have a much higher risk than debt funds. Likewise, returns are also higher. Fixed and assured returns for the duration of the investment. FD returns are not linked to market performance but are generated as per the interest rate locked in at the time of investing.
Lock-in Period The investment tenure is 8 [EW5] years. However, you can sell these bonds after a lock-in period of 5 years. Mutual funds typically don’t have lock-ins. However, exceptions exist, such as the tax-saving ELSS fund, which comes with a lock-in period of 3 years. Fixed Deposits are considered lock-in investments for periods ranging 1 to 10 years[EW6] . However, premature withdrawals are possible at a penalty.
Risk There is a high risk of capital erosion if the market price of gold falls. However, the invested units of gold remain protected. In mutual funds, the higher the risk, the higher the return you can expect. You can choose from low-risk to high-risk funds based on your risk tolerance. Risk is almost negligible owing to no market dependence. However, this relates to FDs offered by banks and the Post Office and not company FDs.
Investment Limits Minimum – 1 gram of gold

Maximum – 4 kg [EW7] for individual investors

You can start SIPs for as little as ₹100[EW8] . There is no cap on investment. Minimum – ₹5,000

No maximum limit [9] 

Tax Exemption No capital gains tax liability if held till maturity. Up to ₹1.5 Lakhs [EW10] is tax – exempt if invested in tax-saving funds such as ELSS. Up to ₹1.5 [EW11] Lakhs is tax free if invested in 5-year tax-saving FDs.


Now that you know the difference between sovereign gold bonds, mutual funds and fixed deposits, you can make allocations for each in your investment portfolio. To easily invest online, try the Bajaj Markets App, available on Google Play or the App Store.

The app gives you easy access to a number of investment instruments, including SGBs, FDs and mutual funds, as well as to insurance and credit solutions. Download it today and compare varied products from reputed providers to strengthen your financial future with ease.

Bihar Feed Team

Biharfeed is dedicated to all those people who always want to be updated with Biography, Business Ideas, Entertainment, famous places to visit, And government scheme.

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