Looking to buy Sovereign Gold Bonds? Here's how to maximise this investment option

The secondary market is now the only avenue for acquiring SGBs.

Sovereign Gold Bonds (SGBs), introduced by the Government of India in November 2015, have emerged as a strong alternative to investing in physical gold. These bonds provide a safe, rewarding way to invest in gold prices without storage or purity concerns.

With new issuances halted since FY 2024-25, the secondary market is now the only avenue for acquiring SGBs. This article explores how to maximise SGB investments, analyses their secondary market dynamics, and explains the reasons behind the discontinuation of new issuances.

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Understanding SGBs

SGBs are issued by the RBI. They are denominated in grams of gold, provide a fixed interest rate of 2.5 percent per annum paid semi-annually, and are redeemed after eight years at the prevailing gold price, with an option for early redemption after five years. SGBs are listed on both the BSE and NSE, and they can be traded like a stock through your demat account.

Analysing SGB prices in the secondary market

As of April 2025, SGBs are actively traded on the BSE and NSE, with prices reflecting gold market trends. Since 2015, over 60 tranches have been issued, each tied to specific issuance dates and eight-year maturities. However, not all series are actively traded due to varying liquidity and investor interest. For instance, SGB 2023-24 Series I and III are relatively liquid, while others, like SGBMAR25, see limited trading.

Due to the surge in gold prices and the limited supply of SGBs, many of them have started trading at a high premium over the India Bullion and Jewellers Association (IBJA) reference rate.

IBJA provides the reference price for gold, which is used to determine the issue price and the redemption value of SGBs at maturity.

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Liquid SGBs trade closer to the reference rate, while less liquid ones command higher premiums. High premiums can reduce returns, making Gold Exchange-Traded Funds (ETFs) a better option for cost-conscious investors. Low trading volumes may also hinder exits at favourable prices, unlike more liquid ETFs.

Strategies to maximise SGB investments

To optimise SGB investments in the secondary market, consider these strategies:

1. Select liquid series: Choose SGBs with high trading volumes, such as SGB 2023-24 Series, to minimise price disparities and ensure ease of exit. Verify liquidity on BSE or NSE.

2. Evaluate premiums: Avoid bonds with premiums above 10 percent, as they may erode returns if gold prices stagnate. Compare traded prices with the IBJA reference rate and prioritise bonds near or below it.

3. Align with investment horizon: Select bonds with residual maturities (e.g., 2030 or 2031) that match your financial goals.

4. Leverage tax benefits: Hold SGBs until maturity for tax-exempt capital gains.

5. Monitor gold prices: With global gold prices exceeding $3,100 per ounce in 2025, driven by geopolitical tensions and lower interest rates, SGBs remain a hedge against inflation and volatility.

Are your investments safe in SGBs?

1. Gold prices have risen by over 250 percent since 2015, raising concerns about the government’s ability to honor SGB redemptions. However, the current SGB liability stands at Rs 1.2 lakh crore, a fraction of India’s total debt, which is Rs 181.74 lakh crore.

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2. Since the launch of SGBs in 2015, the government has responsibly managed its gold reserves, which have grown from 560 tonnes to nearly 900 tonnes. To further ensure the security of SGB investments, the government has created a Gold Reserve Fund that has increased significantly, from Rs 3,552 crore in FY24 to Rs 28,605 crore in FY25. This fund helps manage the rising SGB liabilities.

3. This strategic growth in gold reserves helps absorb the impact of increasing gold prices, ensuring that the government can manage the growing SGB liabilities without tapping into its own funds.

4. As SGBs are backed by the Indian government, they are safer than holding physical gold, with no risk of default. The government’s flawless repayment record since 2015 further enhances investor confidence in the scheme.

5. For those seeking a secure, long-term gold investment, SGBs remain one of the most reliable options. However, due to the escalating costs associated with the scheme, the government decided to discontinue new issuances in 2024.

Conclusion

Sovereign Gold Bonds (SGBs) remain a solid investment choice, offering gold price exposure, a fixed interest rate, and government backing. However, with new issuances halted, the secondary market is now the primary avenue for acquiring SGBs.

While high premiums and low liquidity in certain series can limit returns, Gold ETFs may be a better alternative for investors seeking liquidity.

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To optimise returns, investors should focus on liquid series, avoid excessive premiums, and align their investments with long-term goals. With rising gold prices and no new issuances, SGBs continue to be a valuable addition to a diversified portfolio, provided investors carefully navigate the secondary market.

The writer is Head of Mutual Funds at 1 Finance

Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.