Sovereign Gold Bonds (SGB) vs Mutual Funds

SGBs offer a secure way to invest in gold, while mutual funds provide diversified exposure to various assets for potential higher returns. Learn the key differences between SGBs vs Mutual Funds.

Gold holds a special place in the hearts of many Indians, serving not only as a cherished asset but also as a preferred gift for loved ones on important occasions. It’s widely regarded as a key investment choice across the country. In contrast, Sovereign Gold Bonds (SGBs), offered by the Reserve Bank of India (RBI), present an alternative gold investment method. 

Meanwhile, the ease of mutual funds, which pool funds to invest in a diversified mix of equity and debt securities, has been on the rise. In this article, we’ll delve into the key distinctions between investing in Sovereign Gold Bonds and Mutual Funds.

What are Sovereign Gold Bonds (SGBs)?

SGBs are government-backed gold investments measured in grams. They let you invest in gold without actually holding the metal. The Reserve Bank of India issues them to cut down on the need for real gold and to give investors a chance to make money as the value of gold goes up.

Who should invest?

SGBs are great for those who want a low-risk way to make a steady income and are interested in gold investments but prefer not to worry about storing or securing physical gold. They’re ideal for someone planning to invest for the long run or for anyone wanting to add gold to their investment mix for more variety.

Read More About How to Buy Sovereign Gold Bonds?

Features and Benefits:

  • Returns: Investors earn a fixed interest rate of 2.5% per annum, in addition to the potential capital appreciation in the price of gold.
  • Taxation: No capital gains tax is levied if the bond is held until maturity. Interest income is taxable according to the investor’s income tax slab.
  • Tenure: The bonds have a tenure of 8 years, with an option to exit from the 5th year onwards on interest payment dates.
  • Investment: Minimum investment in SGBs is one gram of gold, making it accessible to a wide range of investors.

What are Mutual Funds?

Mutual funds pool funds from numerous investors to invest in a mixed selection of assets like shares, bonds, and other securities. This method provides a straightforward path for investors to access a wide variety of investment options with the guidance of expert managers.

Also Know More About What is Mutual Fund?

Who should invest?

Mutual funds are a good choice for many types of investors, whether you’re just starting out or have plenty of investing experience. They are designed to meet different financial objectives, risk tolerances, and investment durations. If you’re aiming for higher earnings compared to what you’d get from a regular savings account and are okay with taking on some investment risk, mutual funds could be a great option for you.

Features and Benefits:

  • Diversification: Mutual Funds invest in a variety of assets, which helps spread out risk.
  • Flexibility: Investors can choose from a wide range of fund options based on their investment goals and risk tolerance. Invest in 4000+ mutual funds with Angel One at zero commission.
  • Liquidity: Shares of mutual funds can generally be bought or sold at the fund’s current net asset value (NAV) plus any fees the fund imposes at purchase or redemption.
  • Management: Professional fund managers handle the buying and selling of securities, which is beneficial for investors who may not have the time or expertise to manage their investments.

SGB vs Mutual Funds

Feature Sovereign Gold Bond (SGB) Mutual Fund
Nature Government securities denominated in gold. Pooled investments in diversified assets like stocks, bonds, or other securities.
Investment Type Gold-based, with each unit representing a certain quantity of gold. Varied – equity, debt, hybrid, index funds, etc.
Risk Lower risk relative to equity investments. Risk is mainly related to gold price fluctuation. Dependent on the type of fund (equity, debt, hybrid) and market conditions. Varies from low to high risk.
Returns Fixed interest (2.5% p.a.) plus potential gold price appreciation. Varies based on market performance and fund management. No fixed returns.
Liquidity Tradable on stock exchanges after 5 years; limited liquidity before that. High liquidity, shares can be bought or sold on any business day.
Lock-in Period 5 years (with option to exit in interest payment dates thereafter); 8 years maturity. No lock-in period (except ELSS funds, which have a 3-year lock-in).
Taxation No capital gains tax if held till maturity; interest is taxable. Capital gains tax applies; tax treatment varies between equity and debt funds.
Investment Minimum Typically, one gram of gold. Varies; can start from as low as Rs. 500 for SIPs.
Suitability Investors looking for safety and hedge against inflation with interest income. Suitable for a broad range of investors, from conservative to aggressive, depending on the fund type.
Management Issued by the government, managed by RBI. Professionally managed by fund managers with expertise in various assets.

Wrapping Up!

Gold holds a unique place in India, cherished not just as a precious asset but also for its cultural significance. Sovereign Gold Bonds (SGBs) offer a smart alternative to owning physical gold, encapsulating its value without the physical possession challenges.

Conversely, mutual funds present a versatile investment avenue. It’s essential to recognise that no single investment option suits all. Diversifying across various asset classes is key to a resilient investment strategy, allowing you to achieve your financial objectives regardless of individual asset performance. Choosing the right mix of investments, including SGBs and mutual funds, should align with your financial goals and risk tolerance, whether you’re planning for the short or long term.

Ready to start investing in SGBs or mutual funds? Open your Demat account with Angel One today and embark on a journey towards diversified and strategic investing to meet your financial aspirations.


What are the key differences between Sovereign Gold Bonds vs Mutual Funds?

Sovereign Gold Bonds (SGBs) are investments in government securities reflecting gold prices, offering a way to invest in gold indirectly. Mutual Funds aggregate money from investors to invest across various assets like stocks and bonds, aiming for diversification.

Which is better: SGB or Gold Mutual Funds?

The choice depends on personal financial goals and risk tolerance. Gold is considered a safe investment during economic uncertainties, while mutual funds offer potential for higher returns through managed investments.

Is investing in Sovereign Gold Bonds advisable?

SGBs are appealing for those interested in gold, providing interest income and tax benefits. Their suitability varies based on individual investment goals and strategies.

Are Bonds riskier than Mutual Funds?

Risk varies by bond and mutual fund type. Government bonds like SGBs are generally lower risk compared to equity mutual funds. Risk levels of corporate bonds and mutual funds depend on their specific assets.

Can Sovereign Gold Bonds be claimed under Section 80C?

No, SGBs do not qualify for Section 80C deductions. However, they offer tax exemption on capital gains if held to maturity.

Who should invest in Gold Mutual Funds?

Gold Mutual Funds are suitable for those seeking portfolio diversification with moderate risk tolerance, preferring exposure to gold without physical ownership.