Sovereign Gold Bond Returns – How much can you expect?

Based on the past 44 years of gold data, how much returns can we expect from a sovereign gold bond investment? All are blindly eager to invest in Sovereign Gold Bonds. However, many do not understand the volatility of gold and how much we can expect from gold.

Refer to our latest posts on Sovereign Gold Bonds –

Let me first share with you the features of Sovereign Gold Bond.

Features of Sovereign Gold Bond

# Who can invest?

Resident Indian entities including individuals (in his capacity as such individual, or on behalf of a minor child, or jointly with any other individual.), HUFs, Trusts, Universities, and Charitable Institutions can invest in such bonds.

Hence, NRIs are not allowed to participate in the Sovereign Gold Bond Scheme.

# Tenure of the Bond

The tenor of the Bond will be for a period of 8 years with an exit option from the 5th year to be exercised on the interest payment dates.

Hence, after the 5 years onward you can redeem it on the 6th, 7th, or at maturity of the 8th year. Before that, you can’t redeem.

RBI/depository shall inform the investor of the date of maturity of the Bond one month before its maturity.

# Minimum and Maximum investment

You have to purchase a minimum of 1 gram of gold. The maximum amount subscribed by an entity will not be more than 4 kgs per person per fiscal year (April-March) for individuals and HUF and 20 kg for trusts and similar entities notified by the government from time to time per fiscal year (April – March).

In the case of joint holding, the investment limit of 4 kgs will be applied to the first applicant only. The annual ceiling will include bonds subscribed under different tranches during initial issuance by the Government and those purchased from the secondary market.

The ceiling on investment will not include the holdings as collateral by banks and other Financial Institutions.

#Interest Rate

You will receive a fixed interest rate of 2.50% per annum payable semi-annually on the nominal value. Such interest rate is on the value of money you invested initially but not on the bond value as on date of interest payout.

Interest will be credited directly to your account which you shared while investing.

# Issue Price

The nominal value of the bond is based on the simple average closing price [published by the India Bullion and Jewellers Association Ltd (IBJA)] for gold of 999 purity of the last three business days of the week preceding the subscription period.

# Payment Option

Payment shall be accepted in Indian Rupees through cash up to a maximum of Rs.20,000/- or Demand Drafts or Cheque or Electronic banking. Where payment is made through cheque or demand draft, the same shall be drawn in favor of receiving an office.

# Issuance Form

The Gold bonds will be issued as Government of India Stock under GS Act, 2006. The investors will be issued a Holding Certificate for the same. The Bonds are eligible for conversion into Demat form.

# Where to buy Sovereign Gold Bond Scheme?

Bonds will be sold through banks, Stock Holding Corporation of India Limited (SHCIL), designated Post Offices (as may be notified) and recognized stock exchanges viz., National Stock Exchange of India Limited and Bombay Stock Exchange, either directly or through agents.

Click HERE to find out the list of banks to buy Sovereign Gold Bond Scheme 2021 Series VIII and Sovereign Gold Bond Scheme 2021 Series VIII.

# Loan against Bonds

The Bonds may be used as collateral for loans. The Loan to Value ratio will be as applicable to ordinary gold loan mandated by the RBI from time to time. The lien on the Bonds shall be marked in the depository by the authorized banks. The loan against SGBs would be subject to the decision of the lending bank/institution, and cannot be inferred as a matter of right by the SGB holder.

# Liquidity of the Bond

As I pointed out above, after the 5th year onwards you can redeem the bond in the 6th or 7th year. However, the bond is available to sell in the secondary market (stock exchange) on a date as notified by the RBI.

Hence, you have two options. Either you can redeem it in the 6th or 7th year or sell it secondary market after the notification of RBI.

Do remember that the redemption price will be in Indian Rupees based on the previous week’s (Monday-Friday) simple average of the closing price of gold of 999 purity published by IBJA.

# Nomination

You can nominate or change the nominee at any point in time by using Form D and Form E.  An individual Non – resident Indian may get the security transferred in his name on account of his being a nominee of a deceased investor provided that:

  1. the Non-Resident investor shall need to hold the security till early redemption or till maturity, and
  2. the interest and maturity proceeds of the investment shall not be repatriable.


The Bonds shall be transferable by execution of an Instrument of transfer as in Form ‘F’, in accordance with the provisions of the Government Securities Act, 2006 (38 of 2006) and the Government Securities Regulations, 2007, published in part 6, Section 4 of the Gazette of India dated December 1, 2007.

How to redeem Sovereign Gold Bond?

As I explained above, you have the option to redeem only on 6th, 7th and 8th year (automatic and end of bond tenure). Hence, there are two methods one can redeem Sovereign Gold Bonds. Explaining both as below.

# At the maturity of the 8th year-The investor will be informed one month before maturity regarding the ensuing maturity of the bond. On the completion of the 8th year, both interest and redemption proceeds will be credited to the bank account provided by the customer at the time of buying the bond.

In case there are changes in any details, such as account number, email ids, then the investor must intimate the bank/SHCIL/PO promptly.

# Redemption before maturity-If you planned to redeem before maturity i.e 8th year, then you can exercise this option on 6th or 7th year.

You have to approach the concerned bank/SHCIL offices/Post Office/agent 30 days before the coupon payment date. Request for premature redemption can only be entertained if the investor approaches the concerned bank/post office at least one day before the coupon payment date. The proceeds will be credited to the customer’s bank account provided at the time of applying for the bond.

Sovereign Gold Bond Scheme Taxation

There are three aspects of taxation. Let us see one by one.

1) Interest Income-The semi-annual interest income will be taxable income for you. Hence, For someone in the 10%, 20%, or 30% tax bracket, the post-tax return comes to 2.25%, 2% and 1.75% respectively. This income you have to show under the head of “Income from Other Sources” and have to pay the tax accordingly (exactly like your Bank FDs).

2) Redemption of Bond-As I said above, after the 5th year onward you are eligible to redeem it on 6th,7th and 8th year (last year). Let us assume at the time of investment, the bond price is Rs.2,500 and at the time of redemption, the bond price is Rs.3,000. Then you will end up with a profit of Rs.500. Such capital gain arising due to redemption by an individual is exempted from tax.

3) Selling in the secondary market of the Stock Exchange-There is one more taxation that may arise. Let us assume you buy today the Sovereign Gold Bond Scheme 2021 Series VII and sell it on the stock exchange after a year or so. In such a situation, any profit or loss from such a transaction will be considered a capital gain.

Hence, if these bonds are sold in the secondary market before maturity, then there are two possibilities.

# Before 3 years-If you sell the bonds within three years and if there is any capital gain, a such capital gain will be taxed as per your tax slab.

# After 3 years-If you sell the bonds after 3 years but before maturity, then such capital gain will be taxed at 20% with indexation.

There is no concept of TDS. Hence, it is the responsibility of investors to pay the tax as per the rules mentioned above.

Whom to approach for service-related issues?

The issuing banks/SHCIL offices/Post Offices/agents through which these securities have been purchased will provide other customer services such as change of address, early redemption, nomination, grievance redressal, transfer applications, etc.

Along with this, a dedicated e-mail has been created by the Reserve Bank of India to receive queries from members of the public on Sovereign Gold Bonds. Investors can mail their queries to this email id. Below is the e-mail id

RBI Email Id in case of Sovereign Gold Bonds-[email protected]

Sovereign Gold Bond Returns – How much you can get?

Now let us come back to the purpose of this post. To understand the volatility, price movement, and expected returns of gold, I have considered the last 44 years’ gold price movement. The starting date is 02/01/1979 and the end date is 03/03/2023. This means we have 11,524 daily data points.

I have considered the 8 years’ rolling returns to understand the volatility of gold. Mainly because this post is meant to understand the concept that if someone invested in a sovereign gold bond and redeemed it after 8 years of holding, then what may be the probable returns?

Based on this, if we calculate the 8 years of rolling returns, then we have around 9,440 of 8 years of rolling returns data points.

Rolling returns in simple terms explain is – What if someone invested in gold and sold after 8 years during those 44 years period? Rolling returns will actually give you a clear picture of the volatility of an asset.

Sovereign Gold Bond Returns - 8 Yrs Rolling Returns

You noticed that there is a huge deviation in returns. The maximum return is around 23% and the minimum return is -1%. If we calculate the average returns of all those 9,440 data points of 8 years of rolling returns, then it is 9.6%. You noticed how wide this 9.6% is from both the minimum and maximum returns during these 44 years.

Let us move on to identify the drawdown of these returns. The drawdown is nothing but a fall in the returns from its previous peak. This is an also indication of the risk involved in returns.

Gold Drawdown from 1979 to 2023

You noticed that at a certain point, the drawdown is almost 100% falling from its earlier peak.

This indicates that by investing in sovereign gold bonds, you can’t expect decent returns at least better than equity. Above that, this journey is filled with a lot of volatility. Hence, once you invest in a sovereign gold bond, then it’s nothing but sheer luck to get better or fantastic returns which is filled with lot of volatility.

In that case, one should completely stay away from sovereign gold bonds? The answer is YES and NO. Yes, if you are uncomfortable with volatility and NO if you know why you are investing.

# Invest in a sovereign gold bond if your need is physical gold buying after 8 years or so.

# Never invest in sovereign gold bonds just because there is another 2.5% yearly return. It is a kind of peanut and how many of us actually reinvest this in gold is unknown to us.

# Sovereign gold bond is not risk-free. It is prone to underlying gold price movement. First, understand this concept.

# However, if your idea is to ad sovereign gold bonds as part of your investment portfolio, then better to stay away. Mainly because when you invest in any asset, it should be liquid enough to sell and rebalance as and when you need. However, as SGB trades are low in nature, they may not serve such a purpose. Instead using the Gold ETF or Gold Funds (which invest in ETF) are far better options.

Conclusion – Don’t invest in sovereign gold bonds just because all are investing, your bank or middlemen are recommending, for portfolio diversification or in an expectation of BEST returns. Understand the volatility and probable returns (which are very wide and unpredictable). Instead, invest in SGB only if your requirement is buying physical gold after 8 years.

23 Responses

  1. Can you kindly revert as regards out of the 9440 observations of 8 year rolling returns how any times or what percentage falls within various slabs such as less than 5%, 5-10%, 10-15% & > 15%?

    1. Dear RP,
      You can easily predict from above charts. However, let me update with this data if you really feel a need.

  2. Basu,
    We are planning to accumulate 400 grams of gold for my daughter wedding in 18 years from now. How to plan… Buy gold coins monthly using chit schemes by jewelers. Or SGB / Gold MF FOF. Please suggest correct investment mode to invest.

    1. Dear Kali,
      The best option is through a combination of equity and debt. Otherwise through gold ETFs.

  3. I think what the GoI is saying/promising is the quantity of gold – which for convenience sake is converted into INR. And to my knowledge, one can ask for real gold at the time of redemption/maturity.
    And therefore, it is a bond in terms of “real quantity of gold” – irrespective of market price.

  4. Thank you for your prompt response. Just one more query. Suppose I bought SGB from Secondary Market and the interest is due in a week, then am I eligible for the interest?

    1. Dear Pawan,
      How they adjust we don’t know. However, in the case of Government bonds, they pay it on a proportionate holding period concept. Here, it is unclear and hope they follow the same concept.

  5. As usual another superb article from you on SGB. Almost entire concept is clear in SGB after going through the article except one. If I buy SGB through Secondary Market which was issued 6-7 years ago and now have maturity in the year 2024-25 i.e, 1 or 2 years from my date of purchase and when I redeem it will it be taxed?

    1. Dear Pawan,
      No, it will not be taxed if you REDEEM. However, if you sell in the secondary market before maturity, then it will be taxed.

  6. Thanks for the write up.

    Think there is one point to be highlighted.

    A bond by definition will return the principal intact at redemption/maturity. Plus added interest as promised on the note.

    Here, in case the SGB, was bought at say, as in the example at 2500, and after 8 years the price of Gold is at 2000, then at maturity only 2000 is returned per unit held and _not 2500_ as normal bond would do.

    So it is a not ‘bond’ in strict definition as principal is not guaranteed. Investors need to digest this.

    (open to correction*)
    Good to know that early redemption at exact coupon dates with issuing authority is tax-free. Need to redeem my old bond now.

    1. Dear Pravin,
      Obviously even though the name BOND is associated with this, it will not actually works like bond. That is the reason, if someone is calculating YTM on SGB, then it is wrong.

  7. Nice and detailed analysis.
    A rolling return over a 44-year period at 9.6%, a roughly 40-year return in USD at 3.3% and a roughly 40-year return in INR at 8.8% – one should look at these hard data.
    So, the crux is that “treat this also as an asset class” and take an informed decision.

    1. Dear Kamal,
      Thanks for airing your views. The 9.6% is an average return. We have to also notice the wide deviation from this.

  8. Dear Basu Sir,
    Please advise on taxation in case I buy it from secondary market( which is at generally at a discount) and hold till maturity. My understanding from a couple of other souorces is that gains will be tax free. Kindly share your view on the same.

    1. Dear Dharmesh,
      As it is clearly mentioned on the RBI website also, the transfer of bonds is only considered a capital gain. Redemption back is not considered a capital gain. Hence, your assumption is correct.

  9. Good article.

    However, you have not covered one possibility for taxability.

    If I purchase SGB from secondary market and subsequently 1) sell it in secondary market 2) hold till maturity then what will be the tax treatment ??

    Also, I doubt about tax-exemption on pre-mature redemption in 5th 6th or 7th year.

    1. Dear Ramesh,
      If you buy from the secondary market and sell in the secondary market, then gain is considered as capital gain and taxed accordingly. Regarding premature redemption taxation, I wrote based on what is available from tax sources. However, if you have different view, then please share with proof. Let us discuss on that.

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