In order to compare or analyse how these instruments stack up against one another, we’ll take the help of data tabulation as follows: –
| Parameters | Sovereign Gold Bonds | Physical Gold | Gold ETF |
| Investment limit | A minimum of 1 gram and maximum of 4 KG in case of an individual (as per SGB 2020-21 rules) | No such limit | A minimum of 1 gram and no maximum limit |
| Safety/ Security | It is the safest in terms of lower risk of theft | It has the highest risk of theft than other forms | It is also comparatively more safe with regard to theft |
| Liquidity | It involves limited liquidity | They are highly liquid | They are also highly liquid |
| Annual fund management fees (AMC) | It does not include AMC | Physical gold also does not include AMC | It includes AMC |
| Total Returns | SGB have higher than actual return on gold because of the interest payable on bonds during the holding period | It has lower than actual return on gold | It also has lower than actual return on gold |
| Exit / redemption option | Only from 5th year | Exit at any time | Exit at any time |
| Long-term Capital gains (LTCG) | It is applicable after 3 years except, when it is held till maturity, then no capital gain tax is applies | It is applicable after 3 years | It is also applicable after 3 years |
| Tradability/ Liquidity | These are tradeable on exchange, can be redeemed from 5th year | They are liquid and tradeable but also involves more risk of theft or cheating than the other two options. | They are tradeable on exchange |
| Storage/Insurance charges | No | Yes | No |
| Quality check required | No | Yes | No |
| Brokers charge on buying | No | No | Yes |
| Capital depreciation/ appreciation | Yes | Yes | Yes |
| Purity of Gold | High as it is in Electronic Form | Purity of Gold always remains a high concern | High as it is in Electronic Form |
| Interest on investment | Yes | No interest on investment | No interest on investment as there is no dividend option provided |
| Collateral against Loan | Yes | Yes | No |
| Sovereign Guarantee | Yes | NA | No |
| Storage Cost | Very Low as it is held in the books of Central bank | It’ll include high locker cost if the gold is kept in lockers | Very Low as they’re held in demat form. |
| Purchase value (if prices are taken as that on 1st April 2019) | INR 3117 ( last 3 days average closing price as per SGB manual) | INR 3284 (INR 2985 per gram 22k + value addition at 10% – wastage/ tax/ making charges) | INR 3256 ( value per unit INR 3163 + value addition 3% – tax) |
| Return on holding period (if we assume the price of gold after 8 years to be INR 4000) | 28.32% ((4000-3117)/ 3117*100) | 21.80% ((4000-3284)/ 3284*100) | 22.85% ((4000-3256)/ 3256*100) |
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