Gold ETF vs Sovereign Gold Bond: Which Is Better for Investors?

When I evaluate gold etf vs sgb, I start with a simple truth: both are “paper gold” routes that aim to give me gold price exposure without the hassles of lockers, purity checks, and making charges. The decision is rarely about which product is “better” in isolation. It is about my time horizon, liquidity needs, tax outcomes, and how disciplined I am about staying invested when gold turns volatile.

What a Gold ETF really gives me

A Gold ETF is an exchange-traded fund designed to track domestic gold prices and trade like a stock on the exchange. In practical terms, I can buy or sell units on any trading day, and the price broadly moves with gold, though it can differ slightly because of costs, bid-ask spreads, and tracking efficiency. This is where I pay attention to expense ratio, trading volume, and tracking error—because even small drags matter over time.

Gold ETFs work well for me when:

• I want quick liquidity and the flexibility to rebalance.
  
  
• I prefer a market-linked instrument without an additional “lock-in style” maturity.
  
  
• I want the ability to build exposure gradually (even if I do it manually in the market).
  
  

What an SGB is designed to do

A Sovereign Gold Bond (SGB) is a government-backed bond whose value is linked to gold prices and, importantly, it pays a fixed interest of 2.5% per annum on the issue price (credited semi-annually). That interest component is what makes SGBs structurally different from ETFs.

Traditionally, SGBs have an 8-year maturity, with an early redemption option after 5 years (as per the scheme’s rules). They can also be traded on the exchange, but liquidity can be inconsistent—so I treat the “listed” feature as helpful, not guaranteed.

One practical update I keep in mind: several banks and recent reporting indicate that fresh SGB subscriptions have been discontinued/paused, which means many investors now access them mainly via the secondary market rather than new tranches.

Tax: where the gap can widen

Tax is often the deal-maker.

• SGBs: Interest is taxable. However, capital gains on redemption for individuals are exempt, as described in RBI’s FAQ (and supported by the Income-tax Act’s treatment of redemption). If I sell an SGB on the exchange before maturity, normal capital gains rules apply.
  
  
• Gold ETFs: Current summaries for 2025 commonly describe short-term gains as taxed at slab rates, and long-term gains taxed at 5% without indexation (typically after 12 months), but rules can evolve and product structures matter—so I always verify based on my holding period and the exact instrument.
  

My decision framework

If my priority is liquidity and flexibility, I lean toward a Gold ETF. If my priority is long-term holding with an extra interest component (and I can accept liquidity constraints), I lean toward SGBs—when they are available at sensible pricing.

And regardless of instrument, I follow one discipline: I treat gold as a portfolio diversifier, not a return chase. Whether I buy bonds online through regulated channels or buy gold exposure through the exchange, I focus on product transparency, costs, and the exit path before I invest.

Bottom line: Gold ETFs suit the investor who values liquidity and clean execution. SGBs suit the investor who can hold patiently and wants the structural benefit of interest plus favourable treatment on redemption.