SGB holders see 34-44% annual returns despite gold's correction. Tax exemption now limited to initial subscribers who hold to maturity. Gold ETFs emerge as alternative.
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Investors holding Sovereign Gold Bonds (SGBs) are sitting on returns of 34 to 44 percent over the past year, even after the recent pullback in gold prices.
The government has stopped fresh SGB issuances. Roughly 45 bonds maturing through February 2032 still trade on exchange platforms. Each carries a 2.50 percent annual coupon and redeems at the prevailing gold price at maturity. The Reserve Bank of India last issued an SGB in February 2024.
The bond maturing in February 2032 closed flat Monday at ₹14,537 per gram, up 34 percent over 12 months. The August 2028 series rose 1 percent, or ₹101, to ₹14,093.
Despite the fall in gold prices, the government's outstanding SGB obligation remains about ₹1.12 to ₹1.20 lakh crore. When the RBI launched the programme in late 2015, gold traded near ₹25,000 per 10 grams. It now stands at roughly ₹1.29 lakh.
Tax treatment shifted in the Budget 2026. Capital gains tax exemption now applies only to initial subscribers who hold bonds through the full eight-year maturity. Anyone buying SGBs on the secondary market – through the NSE or BSE – will face tax at redemption.
Rajesh Singla, CEO of Alpha AMC, said investors who purchased directly from the RBI still receive tax-free maturity proceeds. The government's SGB liability, he noted, has climbed more than 900 percent since 2015, representing about 130 tonnes of gold.
Dr Renisha Chainani, Head of Research at Augmont, said gold ETFs are now the better option for fresh exposure, given the change in SGB tax policy. Central banks show differing strategies: Russia and Turkey have been selling gold, while China and Brazil accumulate it as part of foreign exchange reserves. Chainani expects limited pressure on gold prices from central bank sales because structural demand from other regions remains strong.
Manav Modi, Commodities Analyst at Motilal Oswal Financial Services, said gold continues to trend lower and is on track for its largest weekly decline since early June. Escalating US-Iran tensions have kept crude oil prices elevated, reinforcing inflation persistence fears, he said. Another round of US strikes on Iranian targets and an attack on an oil tanker near Iran's main export terminal have heightened supply-disruption concerns, Modi added.
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