What is a Sovereign Gold Bond (SGB)

Sovereign Gold Bonds (SGB) are financial instruments issued by the Government of India as an investment tool that enables individuals to purchase gold without owning it physically. These bonds have a unit price fixed in grams of gold, thus giving investors a more secure and convenient way to participate in the gold market than other forms. Basically, when an individual purchases SGBs, they are investing in government-backed bonds whose value is tied to the value of gold. The bonds have a tenor period and pay interest twice per year, thus gaining the investors capital gains linked to gold prices and, therefore, interest at regular intervals. At maturity, investors can redeem the bonds for cash equivalent to the then prevailing market price of gold. In addition, such bonds come with certain exemptions like no capital gain tax on redemption as well as indexation benefits for long-term capital gains.