Gold has always held a special place in Indian households—not just as jewellery or a store of value, but also as a reliable investment during uncertain times. However, traditional forms of gold ownership come with storage risks, making charges, and liquidity limitations.
In 2015, the Reserve Bank of India, in consultation with the Government of India, introduced the Sovereign Gold Bonds Scheme as a secure and efficient alternative. Over the years, these bonds have gained considerable traction among Indian investors looking for long-term value appreciation and capital protection.
This article evaluates the historical performance of the Sovereign Gold Bonds Scheme, the factors influencing their returns, and how they compare to other asset classes such as fixed deposits and equity trading.
What Is the Sovereign Gold Bonds Scheme?
The Sovereign Gold Bonds Scheme allows investors to buy gold in a paper or digital format without the need to physically hold it. These bonds are issued by the Reserve Bank of India on behalf of the Government of India and are denominated in grams of gold. One unit equals one gram.
Key features include:
- An annual interest rate of 2.50% paid semi-annually on the issue price
- A maturity period of eight years with an option to exit after the fifth year
- No capital gains tax if held until maturity
- Traded on stock exchanges for liquidity
- Backed by the government, making it virtually risk-free from a credit perspective
Historical Returns: A Year-on-Year Review
One of the main attractions of the Sovereign Gold Bonds Scheme is the dual source of return—fixed interest income and price appreciation of gold. Below is a summary of how SGBs have performed in terms of returns since their inception:
FY 2015-16 (Series I to III)
- Issue price: ₹2,684 – ₹2,916 per gram
- Current value (2024): ₹6,400+ per gram
- Absolute return: ~120%+ (excluding interest)
FY 2016-17 to 2017-18
- Issue price range: ₹2,893 – ₹2,984
- Gold prices rose steadily after demonetisation and global volatility
- Annualised return (including interest): Around 11–12%
FY 2018-19
- Issue price: ₹3,214 – ₹3,326
- By 2021, gold prices crossed ₹5,000 per gram
- COVID-19 impact led to a surge in gold as a safe haven
FY 2019-20
- Issue price: ₹3,443 – ₹3,788
- 2020 saw gold hit an all-time high of ₹5,600+ amid pandemic fears
- One of the best performing years for SGB investors
FY 2020-21 to 2022-23
- Issue price range: ₹4,662 – ₹5,926
- Current value still growing; gold remains a stable performer
- Interest payouts continued through semi-annual cycles
Over the past eight years, SGBs have delivered an average annualised return of 11% to 13%, depending on the issue date and redemption timeline. This includes the 2.50% annual interest and the appreciation in the gold price.
Tax Advantages That Boost Returns
One of the biggest benefits of investing in the Sovereign Gold Bonds Scheme is the favourable tax structure:
- Interest income is taxable under ‘Income from Other Sources’
- Capital gains on redemption after maturity (8 years) are fully exempt
- If sold on the stock exchange before maturity, capital gains tax applies depending on the holding period
- Short-term capital gains: Taxed as per income slab
- Long-term capital gains: 20% with indexation benefits
- Short-term capital gains: Taxed as per income slab
This exemption on maturity-based gains significantly enhances net returns, especially for long-term investors who hold till the end of the term.
Liquidity and Exit Options
Though SGBs are meant to be held for 8 years, the RBI allows an early exit after the fifth year on interest payout dates. Additionally, SGBs can be traded on stock exchanges before maturity, although liquidity may be limited based on demand and volume.
Trading SGBs in the secondary market may result in a discount or premium to the current market value of gold, depending on interest rates and investor sentiment. Hence, investors planning to exit early should consider market trends and timing carefully.
Why SGBs Are Gaining Popularity in India
Several factors have contributed to the increasing popularity of SGBs among Indian investors:
- Government-backed returns: Backed by the Reserve Bank of India, SGBs are considered one of the safest gold investment options.
- Convenience: No need to store physical gold or worry about purity.
- Regular income: The 2.50% interest adds a unique advantage over other gold investment avenues.
- Tax-free gains: Long-term investors benefit from full tax exemption on redemption.
- SIP-style investing: Since the government launches multiple series annually, investors can invest small amounts regularly, similar to mutual fund SIPs.
The digital push, greater awareness, and availability through banks and online platforms have also helped increase reach, especially among younger investors.
Risks and Limitations
Despite its advantages, the Sovereign Gold Bonds Scheme is not without limitations:
- Price risk: Gold prices can fall in the short term due to global economic factors, affecting SGB market value.
- Liquidity concerns: Secondary market trading is not always active, making it harder to sell mid-term.
- Fixed interest rate: Unlike floating instruments, the 2.50% rate does not adjust with inflation.
- Lock-in period: Capital is tied up for a minimum of five years, unless traded early.
Still, for investors who want to balance risk and return, especially those aiming for capital preservation with steady appreciation, SGBs are among the top options available today.
Final Thoughts
The Sovereign Gold Bonds Scheme has proven to be a valuable addition to India’s investment options, offering a mix of safety, returns, and tax efficiency. Over the years, its performance has been steady and rewarding, especially when compared to traditional gold or fixed income assets.
While instruments like equity trading offer potentially higher gains, they also require more active management and higher risk tolerance. For investors seeking stable, long-term returns with government backing and tax-free benefits, SGBs offer a dependable path to financial growth.
As gold continues to be an integral part of Indian financial planning, the Sovereign Gold Bond remains one of the most effective ways to hold and grow wealth linked to the yellow metal—without the drawbacks of physical storage or market uncertainty.
Also Read: The Homeowner’s Guide to Budgeting and Financial Success
Gangtokian Web Team