Gold has been a trusted investment option for generations, offering financial security and cultural significance. Today, with the rise of modern investment tools, purchasing gold is no longer limited to physical forms like jewellery or bars. Options like digital gold and Sovereign Gold Bonds (SGB) have emerged as popular alternatives. But how do these options compare? Let’s explore the key differences between SGB and digital gold to help you make an informed decision.
1. Nature of Investment
Sovereign Gold Bonds (SGBs) are government-backed securities issued by the RBI on behalf of the Government of India. Representing the value of gold in grams, SGBs are ideal for investors seeking safety and steady returns. They have a fixed tenure of eight years, with an exit option after the fifth year.
Digital gold lets you buy small quantities online, securely stored in a virtual vault. It offers flexibility and convenience for investors without the need for physical storage.
2. Ownership and Physical Gold
Investing in digital gold does not provide direct ownership of physical gold. However, the gold you purchase is stored in insured vaults by the service provider. You can convert your holdings into physical gold at any time, subject to applicable charges.
With SGBs, there’s no physical gold involved at any stage. Instead, you own gold in its electronic form, and the bond is linked to the prevailing market value of gold.
3. Returns and Income
Sovereign Gold Bonds offer a fixed annual interest of 2.5% plus gold price appreciation, making them attractive for stable returns.
Digital gold, however, provides no interest, with returns solely dependent on gold price fluctuations. It offers instant buy-sell flexibility but lacks periodic income benefits.
4. Liquidity
When it comes to liquidity, digital gold offers more flexibility. You can buy or sell your holdings 24/7 through various platforms, making it ideal for short-term goals.
In contrast, SGBs are better suited for long-term investment as they have a fixed tenure. Premature redemption is only allowed after five years, though you can sell them on the secondary market. However, the liquidity of SGBs in the secondary market is relatively low.
5. Tax Benefits
SGBs have significant tax advantages. Upon maturity, the capital gains from SGBs are tax-free. Additionally, the interest earned is taxable under your regular income tax slab.
Digital gold, however, is subject to capital gains tax upon redemption. If held for less than three years, the gains are treated as short-term and taxed as per your income tax slab. Long-term capital gains tax applies with indexation benefits for holdings beyond three years.
6. Ease of Investment
Digital gold can be purchased effortlessly through mobile apps and online platforms in denominations as small as ₹11, making it accessible to investors of all budgets.
SGBs are available online but have limited subscription windows, requiring you to wait for the next issuance.
Both SGBs and digital gold cater to different goals. SGBs are ideal for long-term returns, tax benefits, and interest income, while digital gold offers flexibility and instant liquidity. With Aditya Birla Capital, you can seamlessly explore both options, leveraging expert guidance and secure platforms to align your investments with your financial goals, risk appetite, and investment horizon.
