Difference Between SGB and Digital Gold

difference between sgb vs digital gold

Demand for gold in India has stayed steady, and more people are turning to digital and paperless alternatives. Rising prices and market fluctuations have also made gold a safe bet for those looking to invest for the first time or as seasoned investors. However, today, you are no longer limited to purchasing physical gold.

You can also invest in other options, such as SGB and digital gold. Digital Gold lets you purchase and sell gold online anytime, beginning with minimal investments. Sovereign Gold Bonds (SGBs) are government-issued bonds linked to gold prices, providing additional interest and tax advantages.

This article provides an overview of both options, outlines their differences, and helps you make the correct decision based on your investment objectives.

Table of Contents

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What is Digital Gold?

Digital gold is an investment option in which you purchase gold in digital form. You purchase online through a mobile app or a website, but you do not have physical possession of the metal. You can sell your gold at market price at any time. The minimum investment amount for digital gold typically starts as low as ₹1, making it accessible to everyone.

Digital gold is said to be 24K pure gold and is often certified by trustworthy refiners. Many investors enjoy investing in digital gold for its convenience, security, and flexibility. Later, it is also possible to convert digital gold into physical gold in the form of coins or jewellery.

What is SGB?

Sovereign Gold Bonds (SGBs) are government securities that allow investors to own gold in paper form. SGBs give investors a quick and easy way to invest in gold without storing it. SGBs are linked to the market price of gold.

These bonds pay an interest rate of 2.50% per year. National treasury bonds are issued with a maturity of 8 years, giving investors the option to exit the holding after a maturity period of 5 years. For investments, the minimum limit is 1 gram of gold. The maximum limit is 4 kg per financial year for individuals and HUFs and 20 kg for trusts and similar entities.

Key Differences Between Digital Gold and SGB

Digital Gold and SGB both have their advantages and operate under different rules. Let's break down their key differences:

Aspect Digital Gold SGB
Definition An alternative to physical gold. It is bought in digital form and is paperless. Government-issued bond linked to current gold prices. It is issued in paper form.
Issuing Agency Private firms such as Augmont, MMTC-PAMP, and SafeGold, through apps such as Paytm, PhonePe, and Google Pay. Issued directly by the Government of India, it has high credibility and trust.
Type of Investment You invest in gold online, but it’s stored by the company for you. You buy bonds backed by the government, linked to gold prices.
Lock-in Period No lock-in period. Sell anytime at market price through the app or platform. 8-year maturity period, with an option to exit after 5 years on interest payout dates.
Investment Size You can start with as little as ₹100. You can buy SGB in multiples of 1 gram of gold.
Interest No interest is paid. You earn 2.5% annual interest on the investment.
Storage Stored in insured, third-party vaults by private companies. No storage is needed from your side, as no physical gold is involved. RBI manages records digitally.
Liquidity Easy to buy and sell anytime through apps or websites. You can sell or redeem it in the market after the lock-in period ends.
Conversion You can convert it to physical gold (coins, bars, jewellery) by paying making and delivery charges. It cannot convert to physical gold; it is redeemed as cash at the prevailing market value.
Tenure No fixed tenure. You can keep it as long as you want. The bond has a fixed tenure of 8 years.
Taxation  Capital gains tax applies if sold after 3 years. No extra tax benefits are available. 2.5% interest is taxable as per your income slab. No capital gains tax if redeemed after maturity.
Risk High risk. Not regulated by the RBI or SEBI. Depends on private providers and market price.  There is a low risk, as the Indian government issues it.
Return Potential Returns depend only on live gold market rates. No guaranteed or fixed income. 2.5% annual interest paid twice a year. Plus, you get the market gold value on redemption.

Benefits of Investing in Digital Gold and SGB

Investing in gold via digital gold or SGB is a great way to benefit from the safe haven asset. Each method has its advantages. The following provides a useful comparison of the key advantages of both investment options:

Benefit Digital Gold SGB
Easy Accessibility You can invest in gold online anytime using apps or websites with a small amount. You can buy SGB easily from banks or financial platforms during set issue periods.
Small Investment You can begin investing with just ₹100. SGB can be purchased in small amounts, starting at 1 gram of gold.
Liquidity  You can sell or redeem your digital gold at any time. You can sell SGB in the market or redeem it once the bond term ends.
Interest  Digital Gold doesn’t offer interest but follows gold’s price increase. SGB pays 2.5% interest. Plus, it gives you extra returns on your investment.
Tax Benefits Digital Gold is taxed on capital gains, with no special exemptions. SGB offers tax benefits if held until maturity, with tax-free interest under certain conditions.
Diversification Digital Gold permits diversification through easily manageable, small amounts. SGB is a low-risk, government-backed asset that provides an opportunity for diversification.
Returns  Your returns are based on the fluctuating market price of gold. Returns are linked with the price of gold, and additional interest is gained, which has a dual benefit.
Convenience Digital Gold can be bought and sold quickly and on the go, by any smartphone. SGB allows a convenient, paperless investment, handled in an online account, and easily managed on the internet.

Who Should Invest in Digital Gold and SGB?

Digital Gold and Sovereign Gold Bonds (SGB) represent two avenues to obtain exposure to gold. The two are different, each with its own features, meaning each will appeal to different types of investors.

Who Should Invest in Digital Gold?

  • Digital gold is the preferred option for investors looking for ultimate flexibility and convenience. It allows investors to invest small amounts when convenient and track gold prices in real time without a long-term commitment.
  • Risk-tolerant investors looking for quick liquidity options may also favour Digital Gold since it can be sold anytime on the platform. However, digital gold has higher expectations for returns and does not provide a fixed income for investors.

Who Should Invest in SGB?

  • SGBs are appropriate for those looking for a long-term investment in gold at a safe price with stable returns. Therefore, SGBs are ideal for conservative investors who want to invest in government-backed securities. It offers a predetermined interest rate fixed at 2.5%.
  • SGBs will also suit people with a medium to long-term investment horizon as the bond has an 8-year maturity period. If you are a tax-conscious investor, the capital gains tax exemption incurred when redeeming investments held for more than 8 years will entice more tax-efficient investors.

What are the Tax Implications of Digital Gold and SGB?

Before investing, it is important to understand how taxes apply to Digital Gold and SGB. Below is a simplified table of how taxes apply depending on the holding period for each option:

Aspect Digital Gold SGB
Short-Term Capital Gains Less than 3 years. Gains added to income and taxed as per your tax slab. If sold 3 years before purchase (via stock exchange). Gains are taxed as per the slab.
Long-Term Capital Gains More than 3 years. 20% tax with indexation on gains. If sold after 3 years but before maturity (8 years). 20% tax with indexation.
Tax on Redemption at Maturity No maturity period. Tax depends on the sale date and holding period. No capital gains tax if held till an 8-year maturity and redeemed by the RBI.
Tax on Interest (SGB Only) Not applicable. No interest earned. 2.5% annual interest is taxed as per your tax slab. No TDS deducted.

Which is Better Between Digital Gold and SGB to Invest?

SGB and Digital Gold are wise options for investing in gold without purchasing any physical gold. However, a few basic factors will determine which option is best for you:

Digital Gold: Adaptable and Practical

If you are looking for a simple online investment, digital gold is ideal. You can buy or sell at any time, and you can start with small amounts. It's perfect for short- or medium-term objectives. It is appropriate for those who favour ease of use and liquidity.

SGB: Safe and Rewarding for the Long Term

SGB is the perfect option for long-term investors. If you hold them until maturity, they offer tax-free capital gains and 2.5% annual interest. Because of its government support, conservative investors find it to be a safer and more reliable choice.

Combining Both for a Balanced Approach

You can combine the two options for greater flexibility and returns. Invest a portion of your funds in SGB for long-term growth and tax advantages, and a portion in Digital Gold for convenient access.

Can We Apply For a Gold Loan With Digital Gold and SGB?

Yes, you can avail of a gold loan against both digital gold and Sovereign Gold Bonds (SGBs), but this depends on the lender. Most banks and NBFCs will issue a loan against SGBs, which are government-backed investments. Some fintech platforms have also started to accept digital gold for loans. Here is how you can apply for a loan:

1. For SGBs

  • Approach your bank or NBFC offering loans against SGBs.
  • Submit your bond certificates or demat account details. The lender will assess the bond's value based on the current gold rate.
  • Complete the paperwork and receive the approved loan amount.

2. For Digital Gold

  • Check if your digital gold platform partners with any loan providers. Then, apply for a loan using your digital gold holdings as collateral.
  • The platform or lender will value your gold and approve the loan.
  • Complete online verification and get the loan credited.

 

For generations, gold has provided safety and long-term value. And in this era of digital assets, new ways to invest in gold are making it easier for all to invest. Whether this is your initial investment or you are integrating gold into your existing investment plan, an allocation to gold can help diversify your portfolio.

It's always a good practice to stay aware, check relevant options, and make your investment choices based on your financial capability and requirements.

Disclaimer: The information provided on this website is for general informational purposes only and should not be construed as financial, investment, or legal advice. While we strive to provide accurate and up-to-date content, we do not guarantee the completeness, reliability, or suitability of the information for your specific needs.

We do not promote or endorse any financial product or service mentioned in these articles. Readers are advised to conduct their own research, consult with financial experts, and make informed decisions based on their unique financial circumstances. Any reliance you place on the information provided here is strictly at your own risk.

FAQs about SGB vs Digital Gold

What is digital gold?

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Digital gold is an online form of investing that allows you to buy, sell, and hold gold digitally without storing it physically. It is backed with 24K pure gold, which the service provider secures. Your investment could be as small as ₹1, and you can later exchange it for physical gold should you want to.

What is SGB?

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Sovereign Gold Bonds (SGBs) are government-backed securities representing gold in paper. SGBs are linked to the market price of gold and a fixed annual interest of 2.50%. The maturity period of SGB is 8 years, with a premature exit option after 5 years.

Is digital gold better than SGB?

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It depends on how long you plan to invest your money. Digital gold is good if you want to buy and sell quickly. SGB is better long-term because it provides interest and tax benefits. So, choose based on your goal, whether it’s short-term or long-term.

Which one is better, SGB or digital gold?

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SGB is better if you can keep money invested for a few years. It gives extra yearly interest and good returns if gold prices rise. Digital gold is flexible and easy to buy and sell quickly. So, pick SGB for long-term needs and digital gold for short-term needs.

What are the disadvantages of digital gold over SGB?

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The key drawback of digital gold is that you may pay higher charges than SGB. There is no fixed interest like SGB offers. Some platforms limit how much you can buy. It also doesn’t have government backing like SGB. Plus, you will pay tax on any profit when you sell.

What is the difference between digital gold and SGB?

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Digital gold lets you buy small amounts, even ₹100 worth, anytime. SGB has a minimum limit of 1 gram and a lock-in period. SGB gives you 2.5% yearly interest, whereas digital gold doesn’t. After 8 years, SGB profit is tax-free, but digital gold isn’t. Digital gold is easier to trade quickly, while SGB is better for future savings.

What is the lock-in period for digital gold and SGBs?

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Digital Gold does not have a lock-in period. You can sell it whenever you want to. SGB has an 8-year maturity period. However, you can leave after 5 years on interest payout dates.

Which has more tax benefits, digital gold or SGB?

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SGB has the potential for better tax benefits than Digital Gold. For SGB, if you hold till maturity (8 years), there is no tax on capital gain. Digital Gold is treated like physical gold, which is taxed based on how long you hold the investment.

Who can invest in Sovereign Gold Bonds (SGB)?

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Any resident Indian individual, HUF, trust, university, or charitable institution can invest in SGBs. To apply, you must have a bank account and a PAN card.

How to invest in Sovereign Gold Bonds?

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You can invest in SGBs by applying through your bank's net banking or mobile banking portal during the RBI issue window. Some banks accept offline applications at their branches. If you miss the fresh issue, you can buy SGBs from stock exchanges on the secondary market. They can be held in a Demat account or a request a physical certificate for SGBs.

What are the advantages of SGB over digital gold?

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Sovereign Gold Bonds (SGB) provide you with an annual return, and you also benefit from rising gold prices. You pay no GST when purchasing an SGB, unlike Digital Gold. With SGB, when you redeem at maturity, you receive tax-free gains.

Can I sell digital gold anytime?

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Yes, you can sell digital gold whenever you want. You just have to log in to the app or platform where you bought the gold. The price you pay will be determined by the live market gold rate at that time.

Which is riskier: digital gold or SGB?

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Digital Gold is riskier as private companies have stored it, and no RBI or government guarantee exists. SGB is ideally a safer option as it is the government of India, and since the RBI backs it, this offers better safety to investors.

How can I buy digital gold?

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You can buy gold from apps like Paytm, PhonePe, Google Pay, and brokerage apps. You can open the app, go to the gold section, choose how much gold you want, and pay through UPI, Debit card, or net banking. The platform stores your gold in a secure locker. You can sell your gold anytime you want from the app.

Is it safe to invest in digital gold?

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Yes, provided that you purchase digital gold through reputable and authorised platforms. The seller stores your gold in a safe vault. However, unlike SGB, there is no government guarantee. Before investing, review the platform's terms and additional fees.

What is the minimum and maximum investment in SGBs?

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You need to buy at least 1 gram of gold in SGB. The maximum you can buy is 4 kg per financial year for individuals. For trusts and companies, it’s up to 20 kg per year.

What is the interest rate on SGBs, and how is it paid?

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SGB gives you 2.5% fixed interest every year on your invested amount. This interest is credited to your bank account every six months and is separate from the gold price increase.

Is Sovereign Gold Bond a good investment?

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Yes, it’s one of India's safest ways to invest in gold. You get both gold price growth and extra yearly interest. After 8 years, you pay no tax on profit when you redeem it. It’s great for people looking for a safe, long-term option.

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