SGB vs. Gold Fund: Which is a Better Investment?

Gold is one of the most popular investment options for individuals. It is used as a hedge against inflation and also for asset appreciation. However, there are quite a few choices to invest in gold which multiplies the complexity of investment choices for the investors. Here we will compare two different gold-linked instruments, Gold Mutual Funds and Sovereign Gold Bonds to help you in making a decision.

What exactly are Sovereign Gold Bonds?

The Indian Reserve Bank issues Sovereign Gold Bonds or SGBs, which are government securities. These bonds are essentially replacements for real gold and are hence quoted in grams. You may own gold in digital form by investing in Sovereign Gold Bonds and earn consistent interest from it.

Moreover, with Sovereign Gold Bonds, the amount of gold you buy is secured since you receive the ongoing marketplace price when you redeem. You must spend and redeem the value of Sovereign Gold Bonds in cash if you decide to invest in them. Furthermore, these bonds may be transferred into Demat format and exchanged on the equity exchange, making them quite easy to invest in.

What exactly are Gold Mutual Funds?

Gold mutual funds are a type of mutual fund that invests primarily in gold reserves. The funds are invested in mining company stocks, gold distribution and production syndicates, and actual gold.

Furthermore, they are open-ended investments in Gold ETF (Exchange Traded Fund) units. Investing in gold mutual funds helps diversify your financial portfolio while also providing a safety net against marketplace volatility and crash.

Sovereign Gold Bond vs. Gold Fund

Gold has always been considered a safe haven by savers and investors across the world. Not only does gold offer security, but it is also considered to be an investment option with comparatively high returns in the long run over other investment avenues. Here is a comparison based on the key features of the two digital gold investment avenues: SGB and Gold Mutual Funds.

  1. Investment Security:

With the increasing interest rates and volatile economy, it is becoming increasingly difficult to make profits in the financial market. Gold is considered to be a safe-haven investment option that offers diverse avenues of trading. Gold holds its value over time and can act as a hedge against the current inflation.

Because Sovereign Gold Bonds are offered by the RBI under the government’s authority, you receive a guarantee on principal repayment as well as interest payment. As a result, you may rest confident that you will receive your due amount at maturity. As a result, Sovereign Gold Bonds are among the most secure ways to invest in digital gold. Also, because they are supervised by SEBI (Indian Securities and Exchange Board), gold mutual funds are a secure investment alternative.

  1. Fund Liquidity:

Gold funds and Sovereign Gold Bonds are similar in that they offer exposure to physical gold. The difference is that a Gold fund can be liquidated without any hassles, while a Sovereign Gold Bond might take some time to redeem.

Because gold funds may be readily liquidated, they are suitable as a financial buffer against financial calamities. Sovereign Gold Bonds, on the other hand, are not as fluid as gold funds but are advantageous if the investment avenue is kept until the maturity date.

  1. Tax Advantages:

Sovereign Gold Bonds are a good tax-saving choice that will provide you with the most advantage if you retain your bonds until maturity. The interest you make on the bonds, on the other hand, is eligible for taxes under the IT Act of 1961. On the other hand, Gold Mutual Funds do not offer any tax benefit.


Based on the above discussion, one can conclude that both gold mutual funds and sovereign gold bonds have their own advantages and disadvantages. However, it is a fact that with the introduction of gold bonds the government has given another method for investment in gold to the public. This is the reason why both these schemes are equally good investment options for gold.

The choice of which gold investment option to go for will depend on your income tax bracket and the money you intend to invest in this asset class. For example, if you are in the highest possible tax bracket of 30%, then the liquidity and safety of investing in gold bonds can provide a good avenue for long-term wealth protection. But if you are in lower tax brackets and wish to diversify your assets, then Gold mutual funds can be an ideal avenue.

The key to making this investment work out is to remember the basics of investing and from there follow a consistent pattern of investing. Diversification is very important in your investment portfolio so be sure not to put all your eggs in one basket. Also remember, that there will be times that things go wrong but both Sovereign Gold Bond and gold funds provide long-term investment advantages to the investor, so staying in the investment avenue might be beneficial

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