Sovereign Gold Bond
A government security denominated in grams of gold, paying interest and redeeming at the prevailing gold price.
Formula
Redemption Value = Grams Held x Average Gold Price over the three business days before maturity
Unit
₹
In depth
The instrument gives gold price exposure plus a 2.5% annual interest coupon on the issue price, which physical gold and gold ETFs do not pay. Its eight-year tenor with early redemption permitted from the fifth year makes it illiquid for practical purposes — listed units trade thinly and often at a discount to the gold price. The capital gain on redemption at maturity has been exempt from tax for individuals, which is the single largest advantage over other gold routes, while the interest is taxable as income. The issuer is the government, so there is no credit risk and no storage or purity question.
Worked example
A bond issued at ₹6,000 per gram pays 2.5% of that, or ₹150 a year, for eight years — ₹1,200 in total. That interest is earned whatever the gold price does, and physical gold pays nothing.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Sovereign Gold Bond” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.