Digital Gold vs SGB

Investing Made Easy with Bonds

 Interest paid monthly/quarterly

 Invest as low as ₹1,000

Invest Now

Earn Up to

13.25%

Exclusively on Bonds

Digital Gold and Sovereign Gold Bonds (SGBs) are popular alternatives to physical gold, but they differ in terms of returns, government backing, liquidity, taxation, etc. Digital gold offers immediate liquidity and hassle free buying, while SGBs provide government-backed capital protection and additional interest. Understanding the difference between the digital gold and sovereign gold bond can help investors to make an optimal decision that fits their investment horizon, risk and returns and financial objectives.

What is Digital Gold

Digital gold refers to the buying and selling of 24K gold digitally. The minimum investment can be as low as Rs 1, making it easier for first-time or small investors to enter the gold market. The equivalent gold is stored in insured, bank-grade vaults. Investors also have the option to redeem digital gold to physical coins or bars. Currently, digital gold is not regulated by SEBI or RBI. Investors have to largely rely on the credibility of the platform and its vault partners. In India, MMTC-PAMP, SafeGold and Augmont are leading digital gold providers.

Features of Digital Gold

• Every unit of digital gold is backed by 99.9% 24K pure gold.
• The returns on digital gold are based on market price appreciation, subject to market fluctuations.
• The investors of digital gold have the option to convert into physical gold coins or bars and get delivered to their home, subject to minimum quantities and fees.
• It removes the need for renting bank lockers or having personal security. Some platforms may charge storage fees after a certain holding period.
• Investors can sell their digital gold holdings instantly at prevailing market-linked prices and receive money in their linked bank account.

Tax Implications on Digital Gold

• GST @ 3% is applicable on digital gold investments on the transaction value, effective from April 1, 2023.
• Short term and long term capital gains are also taxed on digital gold, depending on the holding period.
• If the digital gold is sold within 2 years of purchase, the capital gain is considered as short-term capital gains (STCG) and is taxed as per the individual’s income tax slab rate.
• If the digital gold is sold above 2 years of purchase, the capital gain is considered as long-term capital gains (LTCG) and is taxed @12.5% without indexation.
• Additional cost, i.e., making charges may imply in the conversion to digital gold into physical form (coins or jewellery).

What is a Sovereign Gold Bond

Sovereign gold bonds are government-backed securities issued under the Gold Monetisation Scheme. These bonds are issued by RBI in behalf of the Indian government. It is denominated in grams of gold and acts as an alternative to physical gold. These bonds offer investors with a 2.50% annual fixed interest rate, tax-free redemption after 8 years and capital appreciation based on prevailing market gold prices. However, new issuances of sovereign gold bonds have been discontinued (early 2024) due to the high fiscal burden from rising gold prices.

Features of SGBs

• The minimum investment of the SGB is 1 gram of gold. The maximum investment are as follows:-
  • 4 kg of gold for individuals and HUFs;
  • 20 kg of gold for trusts, universities and charitable institutions
• The interest amount is credited semi-annually to the investor’s bank account.
• The tenure of the sovereign gold bond is 8 years. 
• Investors have an exit option after the 5th year calculated from the date of bond issue on coupon payment dates.
• The capital value fluctuates based on the average closing price of 999 purity gold over the last 3 business days, as per IBJA or India Bullion and Jewellers Association Ltd.
• Investors may face a risk of capital loss if the current market price of gold falls.

Tax Implications on Sovereign Gold Bonds

• The interest earned are taxable under the Income Tax Act, as per the investor’s tax slab. 
• The sovereign gold bonds held until maturity, i.e., 8 year are tax-free on capital gains. However, this income tax exemption is limited to the original subscribers, effective from 1 April 2026 (FY 2026-27).
• This exemption is not available to investors who buy bonds from the secondary market.
• TDS is not applicable on interest and redemption of bonds.

Digital Gold vs Sovereign Gold Bond (SGBs)

Digital Gold vs SGBs: Which One Should You Choose

Investment in digital gold is well-suited for short to medium term investors seeking immediate liquidity, low entry barrier and option to convert to physical gold. Further, there is no maximum limit allowing investors to buy digital gold as much as they want for higher returns. SGBs are better for long term and risk averse investors seeking both tax benefits and interest payments. These bonds provide capital protection as issued by the RBI, making them suitable for retirees and senior citizens. Eventually, investors need to make an optimum decision on the digital gold vs sovereign gold bond based on their investment horizon, financial goals, risk appetite and implications of tax on bonds and digital gold.