Insights Personal Finance

A Comparative & Historical Study of SGB’s4 min read

December 19, 2023


A Comparative & Historical Study of SGB’s4 min read

In the ever-evolving landscape of financial investments, Sovereign Gold Bonds (SGBs) stand out as a beacon of stability and prosperity. Introduced by the Government of India, these bonds have carved a niche for themselves, attracting investors with their unique features and undeniable benefits. This blog will take you through understanding SGB’s as a whole , give a brief on how SGB’s have performed historically and also give comparisons between using SGB’s vs. other collaterals for your F&O trades.

Understanding Sovereign Gold Bonds:

Sovereign Gold Bonds are financial instruments issued by the Reserve Bank of India on behalf of the Government of India. Unlike physical gold, these bonds offer investors a way to own gold in a paperless form, eliminating the hassles and risks associated with storing and securing physical gold.

The structure of SGBs is akin to that of a fixed-term deposit, but with a glittering twist. Investors subscribe to the bonds during specific issuance windows announced by the government. The bonds come with a fixed tenor of 8 Years and offer a periodic interest payout of 2.50% per annum. The real allure, however, lies in the capital appreciation linked to the prevailing market price of gold.

1. Safety and Security:

Backed by the Government of India, SGBs provide a high level of safety and security for investors. The sovereign guarantee ensures the return of the principal amount upon maturity.

2. Zero Making Charges:

Unlike physical gold, where a substantial portion of the investment is consumed by making charges, SGBs come with zero making charges. Investors receive the full value of their investment, maximizing returns.

3. Attractive Interest Rates:

In addition to the potential capital appreciation, SGBs offer a fixed interest rate of 2.50% per annum, payable semi-annually. This feature enhances the overall yield, making it an attractive proposition for conservative investors.

4. Liquidity and Tradability:

SGBs are traded on stock exchanges, providing investors with liquidity and the flexibility to exit their investments before maturity. This tradability adds a layer of dynamism to the investment, allowing investors to respond to market conditions.

5. Capital Gains Tax Benefits:

Investors stand to gain from tax exemptions on capital gains if the bonds are held until maturity. The exemption on capital gains tax is a compelling advantage, enhancing the overall tax efficiency of the investment.

6. Long-Term Wealth Accumulation:  

With a tenor of 8 years, SGBs are well-suited for long-term wealth accumulation. Investors can harness the power of compounding and benefit from the inherent stability of gold as an asset class.

7. Environmental Sustainability:

Opting for Sovereign Gold Bonds aligns with a sustainable and environmentally friendly approach to gold investment. By eliminating the need for physical storage, SGBs contribute to the reduction of environmental impact associated with gold mining and storage.

Comparing Previous SGB Issues:

Here’s a glance at the performance of the last five SGB issues, showcasing returns they currently provide 

(Source: NSE Exchange as on 18-12-23)

Benefits for F&O Traders with SGBs:

F&O traders can leverage Sovereign Gold Bonds as collateral, enjoying benefits such as:

Leverage and Cost-Efficiency:

Utilize up to 90% margin on SGBs, providing substantial leverage for F&O trades with a cost-efficient collateral option. If an investor owns SGB’s worth Rs. 5 Lakhs , he can avail leverage of upto Rs.4.5 Lakhs on the market value of their SGB’s

Interest Earnings:

While used as margin, SGBs continue to earn interest, potentially offsetting financing costs associated with margin trading.

Tax Efficiency:

Benefit from tax exemptions on interest earned, aligning with a tax-efficient approach to F&O trading.

Risk Mitigation:

Diversify the collateral base by including gold, a stable asset, as a risk mitigation strategy.

A brief snapshot of which collateral is better suited based on your requirements:

As a modern and innovative investment vehicle, Sovereign Gold Bonds not only cater to the traditional investor seeking stability but also provide a versatile tool for F&O traders, offering a blend of leverage, interest income, and tax advantages. Embracing the power of SGBs brings a unique synergy of financial strength and environmental responsibility to the forefront of wealth-building strategies.

Disclaimer: Investments in the securities market are subject to market risks, read all the related documents carefully before investing. This content is purely for investor awareness and information purpose only and in no way to be considered as an advice or recommendation. Paytm Money Ltd SEBI Reg No. Broking – INZ000240532, Depository Participant – IN – DP – 416 – 2019, Depository Participant Number: CDSL – 12088800, NSE (90165), BSE (6707) BSE STAR MF Member ID – 53873, Pension Fund Regulatory and Development Authority (PFRDA) as NPS ePOP (269042019). Regd Office: 136, 1st Floor, Devika Tower, Nehru Place, Delhi – 110019. For more details, please visit