trying to understand the difference between SGB and Gold ETF. both track gold prices so why do people prefer one over the other? feels like they should be the same thing
SGB gives interest
ETF doesn’t
wait you get interest on a gold investment?
Yes. Sovereign Gold Bonds pay 2.5% per annum on the issue price, credited semi-annually. That is on top of any price appreciation in gold. A Gold ETF only gives you price exposure with no interest component. So SGB has a structural return advantage built in.
but the catch is lock-in
8 year tenure
exit window only from year 5 onward
oh that’s a long time. what if I need the money earlier
what about tax? i’ve heard SGBs have some benefit there
Correct. Capital gains on SGBs held till maturity are completely exempt from tax. If you sell a Gold ETF after 3 years it is taxed as long-term capital gains. For someone in a higher tax bracket holding till maturity, the SGB tax benefit is meaningful and adds further to the return advantage over ETFs.
so basically:
sgb = better returns, tax free at maturity, but locked in for 8 years
gold etf = lower returns, taxable, but buy and sell whenever you want
okay that actually makes sense now. so it depends on whether you can commit to 8 years or need flexibility
Exactly. I hold both for that reason. SGBs for the long-term gold allocation I know I will not touch. ETFs for the portion where I want the option to exit if something comes up. The two actually work well together rather than being either-or.