Gold ETFs or SGB: Where to invest on Dhanteras?

Buying gold especially during festival time is a tradition followed by many Indians as it is considered auspicious and is thought to bring good luck. Dhanteras falls on November 10 and 11, 2023.

If you are looking at investing in paper gold you can do it either through Gold exchange-traded funds (ETFs) or Sovereign Gold Bonds (SGBs). Unlike physical gold, you will not get physical possession of the gold instead you hold it as an investment which can be redeemed when you need it.

The SGBs will be sold through Scheduled Commercial banks (except Small Finance Banks, Payment Banks and Regional Rural Banks), Stock Holding Corporation of India Limited (SHCIL), Clearing Corporation of India Limited (CCIL), designated post offices, and recognised stock exchanges like NSE and BSE.


The government launched the sovereign gold bonds scheme in 2015. Rather than owning gold in physical form and keeping it idle without earning anything on it, SGB gives you the opportunity to own gold and earn interest on it.

SGB is not available ‘on-tap basis’ and instead the government intermittently opens a window for the fresh sale of SGBs to investors. The latest Sovereign Gold Bond (SGB) tranche was open for subscription on September 11 and closed on September 15, 2023. The Reserve Bank of India (RBI) has kept the settlement date of this tranche of Sovereign Gold Bond Scheme 2023-24 Series as September 20, 2023.

The issue price of SGB will be based on simple average of closing price of gold of 999 purity, published by the India Bullion and Jewellers Association Limited for the last 3 working days of the week preceding the subscription period. The issue price of the gold bonds will be Rs 50 per gram less for those who subscribe online and pay through digital mode.

Also read: Want to invest in Sovereign Gold Bonds? 7 watch outs to know before investing in SGB

For investors looking to purchase SGBs anytime in between, the only way is to buy earlier issues (at market value) listed in the secondary market.

While physical gold bought from jewellers or banks could come at a premium, of somewhere around 10 percent, the price of SGB is close to the actual price of gold.

Investments: Minimum investment in the SGB is one gram with a maximum limit of subscription of 4 kg for individuals, 4 kg for Hindu Undivided Family (HUF) and 20 kg for trusts and similar entities notified by the government from time to time per fiscal year (April – March).If payment is made in cash, the maximum amount of limit is Rs 20, 000. If there is a joint holding, the first application is subject to the cap. The annual ceiling will cover bonds bought on the secondary market as well as those subscribed for under various tranches during the government’s first issuance. The holdings used by banks and other financial institutions as collateral will not be included in the investment ceiling.

When you invest, an investor ID is issued which tracks the total investment made. You will also be issued a holding certificate. The bonds are also eligible for conversion into demat form. Only bonds held in demat form with depositories can be traded on stock exchanges.

Tenor and interest rate: The bonds come with a tenor of eight years with exit options available in the 5th, 6th and 7th years, to be exercised on the interest payment dates. The government has fixed an interest of 2.50 per cent per annum on the investment, with no compounding of interest. The interest will be paid in half-yearly rests and the last one shall be payable on maturity along with the principal.

Taxation: SGBs are a tax-efficient investment since they provide investors with tax advantages. If the investment is kept to maturity, capital gains on the redemption of SGBs are exempt from capital gains tax. Capital gains tax is applicable if SGBs are sold before maturity. Note that SGB interest income is subject to taxation under the Income Tax Act, it is also eligible for indexation advantages. No tax benefits are available for the deposit of Sovereign Gold Bonds (SGBs) under Section 80C of the Income Tax Act.

Also read: Buying gold jewellery this Diwali? How to check purity of gold jewellery using BIS app

Liquidity: Investment in Gold ETFs is more liquid as compared to investment in SGB. Redeeming the units is entirely online and without any lock-in period in case of Gold ETFs.

Gold ETFs

An alternate way of owning paper gold more cost-effectively is through gold ETFs. Such investments happen on a stock exchange (NSE or BSE) with gold as the underlying asset.

Pricing: The high initial buying and even selling charges that come with owning gold jewellery, bars or coins gives an extra edge to the low-cost gold ETF. The transparency in pricing is another advantage. The price on which it is bought is probably the closest to the actual gold prices and therefore the benchmark is the physical gold price.

Investments: What you need is a trading account with a share broker and a demat account. One may either buy in lump sum or even at regular intervals. You can invest for as low as 1 gram of gold. It is advisable to invest systematically rather than try to time the market.

Gold ETF’s listed on NSE

  • Mirae Asset Gold ETF
  • Quantum Gold Fund
  • LIC MF Gold ETF
  • Axis Gold ETF
  • Aditya Birla Sun Life Gold ETF
  • ICICI Prudential Gold Exchange Traded Fund
  • HDFC Gold Exchange Traded Fund
  • DSP Gold ETF
  • Invesco India Gold ETF
  • SBI Gold ETF
  • Nippon India Gold Exchange Traded Fund

Charges: Even though there are no entry or exit charges, you should factor in these two costs. First, is the expense ratio (for managing the fund) of around 1 percent. Second, is the broker cost that needs to be accounted for every time you buy or sell gold ETF units.

Taxation: “When unitholders make a profit on the redemption of gold ETF units, they will have to pay capital gains tax. In Gold ETFs, taxes are applicable on both long- and short-term capital gain. Long-term capital gains tax is taxed at 20% after indexation on gold ETF investments held for more than 36 months. For investment held up to 36 months shall be treated as short-term capital gain, the capital gains tax will be levied as per applicable tax slab of unitholders. As opposed to buying or investing in other forms of gold, gold ETFs do not attract wealth tax, GST, or security transaction tax,” as per the Nippon India Mutual Fund website.

Liquidity: However, a gold ETF is more liquid. Further, owing ETF units is much easier than SGB as the process is done entirely online.

What should you opt for?

Before you make your investment decision, narrow down on the reason as to why you want to invest — is it for an occasion like a wedding or is it for wealth creation. Further, make sure you do not put in more than 10 percent of total portfolio in gold, be it physical or paper gold.

William Murphy

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