Gold: SGB vs ETF vs Physical
Gold: SGB vs ETF vs Physical
The same rupees in gold, three very different tax outcomes
In today's money (inflation-adjusted)
0
real purchasing power after assumed inflation
Sovereign Gold Bond
2.5%/yr interest (taxable at your slab) on top of gold price appreciation. Capital gains at maturity (8 years) are fully tax-exempt — the only gold route with a genuine tax-free exit.
Gold ETF
No interest, only price appreciation, minus a small annual expense ratio. LTCG at 12.5% if held over 24 months, fully liquid on the exchange — no 8-year wait like SGB.
Physical gold
Making charges (assumed ~12% one-time) and 3% GST on purchase eat into returns before price appreciation even starts, plus LTCG at 12.5% (no indexation) on eventual sale and real storage/theft risk.
SGB assumes the government-set 2.5% annual interest (taxable at your slab, paid semi-annually in practice, simplified here as accrued) plus gold price appreciation, with the full maturity value exempt from capital gains tax at the 8-year tenure — selling an SGB early (5-8 years, via the RBI window or exchange) loses this exemption and is taxed at slab/12.5% depending on how it's exited. Gold ETF assumes a 0.5%/yr expense-ratio drag and 12.5% LTCG (no indexation) if held beyond 24 months (slab rate if shorter). Physical gold assumes ~12% one-time making charges plus 3% GST on purchase, and the same 12.5% no-indexation LTCG on sale — storage cost/theft risk isn't quantified but is real. All three are pre-tax-return assumptions you should adjust to your own view of gold prices.
Frequently asked questions
What is CAGR and how is it different from average return?
CAGR (Compound Annual Growth Rate) is the single steady annual rate that would take your starting value to your ending value over the period, accounting for compounding. A simple average of yearly returns can be misleading -- a 50% gain followed by a 50% loss averages to 0%, but you'd actually be down 25%. CAGR reflects what actually happened to your money.Read more: The Sovereign Gold Bond Scheme Was Quietly Discontinued — Here’s What That Means If You’re Holding One
Is SIP better than a lump sum investment?
Neither is universally better -- a SIP (spreading investment across regular installments) reduces the risk of investing everything right before a downturn and suits regular income, while a lump sum captures more time in the market if invested when prices are relatively low. For most people investing from salary, SIP is the practical default; a lump sum windfall is often still better invested promptly rather than staggered indefinitely.Read more: Your Retirement Number Ignores the One Cost Growing Twice as Fast
How does compounding actually grow money over time?
Compounding means your returns start earning their own returns, not just your original investment. The effect is small in early years and accelerates sharply later -- which is why starting early matters more than almost any other single investing decision, even more than the exact return rate.Read more: Your “Financial Advisor” Is Probably Just a Salesperson on Commission
What's a realistic long-term return to assume for equity investments?
Long-term equity returns vary a great deal by market and period, and past performance never guarantees future results. Most long-term financial plans use a conservative, inflation-aware assumption rather than recent bull-market numbers -- this calculator lets you test your own assumption and see how sensitive the outcome is to it.Read more: SEBI’s SCORES Portal Promises a 21-Day Fix — Here’s What That Timeline Doesn’t Tell You
Estimates only, not financial advice. See our Disclaimer.
