Sovereign Gold Bond vs. Gold ETF: Which will grow your ₹1,00,000 investment more?

Why do so many Indians still struggle to pick between Sovereign Gold Bonds and Gold ETFs, when gold is already part of almost every portfolio?

This isn’t a new question. You want returns. You want safety. And maybe some interest too. But what’s better if you invest ₹1,00,000 today, SGB or Gold ETF? And not just better for now, but better even 5 years later?

Here’s where things get interesting.

While both are based on the gold price, they behave very differently. One gives you interest. The other gives you liquidity. And both claim to be smarter than buying physical gold. But which one grows your money faster?

This blog cuts through the confusion.

Growing your ₹1,00,000 investment—SGB or Gold ETF?

We are not discussing features here. We are talking about real results, simple calculations, Indian examples, and clear logic. 

We break down every part, from tax to returns, to show what works. Because investing is not about feelings, it’s about facts.

Returns battle: Fixed income vs Flexible growth (SGB vs ETF)

Let’s start with what matters most, returns.

Sovereign Gold Bonds (SGBs) give you a fixed 2.5% interest yearly. That’s over and above the gold price. Paid twice a year. It sounds small. But it adds up when you hold for 5–8 years.

Read More - How to Buy Digital Gold in 2025

Gold ETFs don’t give you any fixed return. You only earn if the gold price goes up. The good part? You can buy and sell anytime. So if you time it right, ETFs can give high returns.

But let’s look at actual numbers.

₹1,00,000 invested in 2020, redeemed in 2025

In simple words:

• SGB gave ₹16,000 more
• Because of interest and zero capital gains tax (if held till maturity)

If you're investing for long term (5 years or more), this interest + tax benefit creates a strong edge for SGB.

Short-term difference? Not much. ETFs might even win if you sell in 1–2 years. Because you can exit fast, and gold prices do swing.

Year-wise example: ₹1,00,000 investment projection

Tax load: When saving tax is as good as gaining more

Now let’s talk taxes. Indians hate paying extra. So do smart investors.

With SGBs, if you stay invested for 8 years, there’s zero capital gains tax. Not even a rupee. That’s huge.

Yes, the 2.5% yearly interest is taxable. But you still save a lot when you exit.

Gold ETFs? Different story. If you hold for over 3 years, 20% tax with indexation applies. That means you get some benefit from inflation. But you still lose a chunk to taxes.

Tax comparison chart

Let’s take an example.

If you earn ₹76,000 profit from ETF over 5 years, after tax (~15,000), your post-tax gain is only ₹61,000. In SGB, you keep full ₹92,000—simple math.

This gap only widens with bigger amounts.

Ease of use: Liquidity vs Commitment

We now move to the practical side. How easy is it to buy, sell, or access your money?

Gold ETFs are super flexible. You can buy today and sell tomorrow. They are all online, and the prices match the market. This is great if you’re an active trader or need funds quickly.

SGBs? Locked for 8 years. Yes, there is an exit from year 5 via exchange. But volume is low. And prices may differ from the market. It’s best to wait the full term if you want the full benefit.

So if you need money in 2–3 years, SGB is not for you.

Convenience comparison

Think of SGB as an FD linked to gold. Think of ETF as a liquid mutual fund. Your goals decide what suits you.

Costs, risks, and extras: The small stuff that becomes big

Let’s not forget hidden costs.

Gold ETFs charge fund management fees, usually 0.5%–1% yearly. You add brokerage when you buy/sell, and GST is added when you buy.

SGBs have no recurring costs. You may pay ₹50–₹100 as a transaction fee. That’s it.

Also Read - How to Make Money from Gold in 2025

Also, no theft or storage cost. Both are digital.

Risk?
Gold price risk is there in both. However, ETFs have slightly higher volatility due to daily trading. SGBs are stable since you don’t panic-sell.

Conclusion

If you don’t need quick cash and can wait, consider SGBs. The combination of interest and tax freedom gives you more money.

But if you’re unsure about staying long or want to trade gold, ETFs give you full control. Your decision should always match your goal.

Always ask yourself: What do I want more, speed or strength?

FAQs

1. Can I buy Sovereign Gold Bond without demat account?
Yes. You can apply via your bank or post office using your PAN card and savings account. Demat is optional.

2. What happens if I sell SGB before 8 years?
You can sell from year 5 on exchanges. But you may get lower price and pay capital gains tax if there is profit.

3. Are Gold ETFs safe like SGBs?
Gold ETFs are backed by physical gold. But returns depend on market price. SGBs give fixed interest too.

4. Which gives higher return in 3 years—SGB or ETF?
Gold ETFs usually win in 3-year window as SGB interest + tax benefit don’t show full power that early.

5. Can I invest ₹1,00,000 in gold monthly via SIP?
Yes. Many Gold ETFs allow SIPs through mutual fund platforms. SGBs are issued only in tranches, not monthly.

Apply for Loans Fast and Hassle-Free

Apply Now

About the Author

LoansJagat Team

We are a team of writers, editors, and proofreaders with 15+ years of experience in the finance field. We are your personal finance gurus! But, we will explain everything in simplified language. Our aim is to make personal and business finance easier for you. While we help you upgrade your financial knowledge, why don't you read some of our blogs?