Sovereign Gold Bond
Also written Sovereign Gold Bonds · SGB · Sovereign Gold Bond (SGB)
A Government of India bond denominated in grams of gold, with an 8-year tenor, paying 2.5% a year over and above gold price appreciation. Discontinued from FY 2024-25.
In plain language
Gold, in the workbook's description, earns its return only from appreciation — no interest, no dividend, no rent. It also comes with the practical problems of storage, purity and resale deductions.
The Sovereign Gold Bond was the Government of India's answer to both. It let an investor hold gold without holding the physical asset, tracked the gold price, and — unusually for gold — paid interest on top.
An adviser still meets it in existing portfolios, but the workbook records that these bonds have been discontinued from FY 2024-25.
How it works
The features the workbook gives:
| Feature | Detail |
|---|---|
| Issuer | Government of India |
| Denomination | Units of one gram of gold and multiples |
| Tenor | 8 years |
| Interest | 2.5 percent per annum, over and above the appreciation |
| Redemption | At a price based on the price of gold at the end of the tenor |
| Minimum | 1 gram |
| Maximum | 4 kg |
| Status | Discontinued from FY 2024-25 |
How it compares with the other ways of holding gold in the chapter:
- Physical gold — coins, bars, jewellery. Storage and purity concerns, and wastage and making charges eat into resale value.
- Gold ETFs and gold funds — remove storage and purity issues, are liquid and allow regular investment, but returns may trail the gold price because of expenses and cash holdings.
- Digital gold — convenient, but the workbook warns it does not work within norms laid down by a regulator and offers no investor protection.
- Sovereign Gold Bond — government issuer, no physical holding, and the only one of these with a periodic income.
A worked example
Illustrative figures. An investor bought 10 grams of Sovereign Gold Bonds when the issue price was Rs 6,000 a gram — Rs 60,000 — and held to maturity 8 years later, when gold was Rs 9,000 a gram.
The workbook gives the interest rate but not the base it is computed on; this example assumes 2.5 percent on the amount invested.
Interest = 2.5% × 60,000 = Rs 1,500 a year × 8 years = Rs 12,000
Redemption = 10 grams × Rs 9,000 = Rs 90,000
Appreciation = Rs 30,000
Total return over 8 years = 30,000 + 12,000 = Rs 42,000
A gold ETF tracking the same price move would have delivered at most the Rs 30,000 of appreciation, less its expenses — and nothing more, because gold itself yields no income. The Rs 12,000 is the difference between "owning gold" and "owning a government bond priced in gold".
If gold had instead fallen to Rs 5,000 a gram, redemption would be Rs 50,000: a Rs 10,000 loss on the gold, partly cushioned by the same Rs 12,000 of interest. The government guarantee covers the issuer, not the price of gold.
Why NISM asks about it
Chapter 6, section 6.2.1 (Accumulation Stage Products), describes the Sovereign Gold Bond within the gold product profile, with the 8-year tenor, 2.5 percent interest, 1 gram / 4 kg limits and the discontinuation from FY 2024-25. Expect recall of those figures, and comparison questions against gold ETFs, gold funds and digital gold — in particular which form of gold carries a periodic income and which lacks regulatory protection.
Common exam traps
- Discontinued from FY 2024-25. A question implying an investor can subscribe to a fresh issue is testing whether you know this.
- The 2.5 percent is in addition to appreciation, not a guaranteed minimum return and not a cap on it. The redemption price still follows gold, down as well as up.
- It contradicts the general rule the same page states. The workbook says gold has no periodic income and an open-ended tenor; the Sovereign Gold Bond has both an income (2.5 percent) and a fixed tenor (8 years). Answer product-specific questions from the product's features.
- 1 gram minimum, 4 kg maximum — against a typical Rs 5,000 minimum for gold ETFs and gold funds and no prescribed limit for gold generally.
- Not digital gold. The workbook contrasts digital gold as unregulated; the Sovereign Gold Bond is a Government of India issue.
- Not a gold ETF. An ETF holds physical gold of 99.5 percent purity through a custodian; the bond is a government obligation.
Where this is taught
Free preparation for NISM Series X-BRelated terms
- DiversificationSpreading an exposure across holdings that do not move together, so that total risk falls by more than total return does — minimising risk per unit of return.
- Accumulation stageThe working years, in which saving and investment build the retirement corpus — the stage where the ability to take risk is highest and where time, not contribution size, does most of the work.
- Exchange Traded FundA mutual fund scheme whose units are listed and traded on a stock exchange like a share, so you transact at live prices through the day instead of at one end-of-day NAV.
- Digital goldA way of buying gold online, in amounts as small as Re 1, where the seller earmarks and stores an equivalent quantity of physical gold in a vault on the buyer's behalf.
- Total returnThe whole return on an investment for a period: periodic income such as interest, dividend or rent plus the gain or loss in the value of the investment itself.
- Premature redemption of SGBThe option to exit a Sovereign Gold Bond after 5 years of its 8-year tenor, on the next interest payment date — with capital gains on the exit exempt for individuals but taxable for other investors.
- Gold ETFAn exchange-traded fund tracking domestic gold prices, backed unit-for-unit by physical gold of 99.5% purity or gold receipts, traded on the stock exchange like a share rather than held as jewellery.
- Gold futures and options horizonsThe workbook's comparison of holding periods across gold routes: gold futures run a 12-month horizon, gold options follow the exchange's own contract calendar, while gold ETFs and gold funds can be held for a lifetime.
- GST on gold routesGST is incurred on physical gold, gold funds and gold ETFs, since each involves an actual gold purchase added to cost — but not on Sovereign Gold Bonds, which never buy physical gold at all.
- SGB redemption priceThe rupee amount a Sovereign Gold Bond pays at maturity — the simple average of the closing price of 999 purity gold over the previous three working days, as published by the India Bullion and Jewellers Association.
- Government SecurityA tradeable debt instrument issued by the Central Government or a State Government — treated as free of default risk, and the benchmark against which other rupee interest rates are priced.