Digital Gold Vs. Sovereign Gold Bond

Digital Gold Vs. Sovereign Gold Bond

The key difference between Digital Gold and Sovereign Gold Bonds is that Digital Gold allows you to own physical gold electronically and buy or sell in small amounts. On the other hand, Sovereign Gold Bonds are government securities that offer regular interest payments while tracking the price of gold.

Table of contents:

Digital Gold Meaning

Digital gold means you own real gold but it’s stored securely and managed online. This allows you to buy and sell small amounts of gold easily. It offers a modern way to invest in gold without the hassle of physical storage.

As it’s all done digitally, it’s much simpler to invest in digital gold. It’s especially good for people who don’t want to buy large gold bars or don’t have a safe place to store them.

Investing in digital gold through online platforms offers clarity and security, assuring investors of what they own and safeguarding their assets. Overall, digital gold is a new and easy way for anyone to invest in gold and it has always been a valuable resource.

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Sovereign Gold Bond Meaning

SGBs are government-issued securities backed by gold reserves. It allows investors to own gold in paper form. This provides a convenient way to invest in gold without the need for physical storage. SGBs offer the benefits of owning gold and earning interest which makes them attractive.

Investing in Sovereign Gold Bonds comes with several advantages. First off, investors benefit from the current market price of gold when the bonds mature. These bonds also offer a decent interest rate of 2.50% per year, paid out every six months, making them more attractive.

In terms of taxes, the interest you earn is taxed based on your income bracket, but you don’t have to pay capital gains tax when you redeem the bonds on maturity, which makes them more tax-friendly. Additionally, these bonds mature after eight years, but there’s an option to cash out after five years on the interest payment dates, giving you more control over your investment.

Digital Gold Vs. Sovereign Gold Bond

The main difference between Digital Gold and SGB is that Digital Gold lets you buy gold online in small amounts, whereas Sovereign Gold Bonds are like special savings plans from the government that are tied to the price of gold and pay you interest regularly.

ParameterDigital GoldSovereign Gold Bonds (SGBs)
Nature of InvestmentDigital Gold represents ownership of physical gold in electronic format, with each unit backed by physical gold stored securely.SGBs are debt securities issued by the Government of India, linked to the current gold price.
IssuerIssued by private companies that partner with reputable metal suppliers and custodians to ensure safety and authenticity.Issued directly by the Government of India, ensuring high credibility and trust.
SecurityThe security of Digital Gold depends on the provider’s reliability and the robustness of the physical gold storage mechanisms.SGBs offer high security as they are government-backed securities, reducing investment risk.
ReturnsThe return on Digital Gold is directly tied to the fluctuating market price of physical gold at the time of sale.SGBs offer a fixed annual interest of 2.5% on the initial investment, plus capital appreciation if gold prices rise.
Tax TreatmentDigital Gold transactions are subject to capital gains tax based on the holding period, without any specific tax advantages.Interest from SGBs is tax-exempt, and there is no capital gains tax if the bonds are held until maturity.
LiquidityDigital Gold is highly liquid and can be sold at any time based on the current gold prices through various fintech platforms.SGBs are less liquid than Digital Gold but can be sold or traded on stock exchanges, though market conditions affect liquidity.

How To Invest In Gold Sovereign Bonds?

To invest in Sovereign Gold Bonds, you need to buy government certificates that are linked to the price of gold. This allows you to benefit from the value of gold without having to physically own it. It ensures security and reliability.

Here’s how to do it step by step:

  • Open a Demat Account: First, you need a Demat account. This account will hold your SGBs electronically. If you already have a Demat account for equities, you can use the same one.
  • Register with a Broker: Choose a broker like Alice Blue if you don’t already have one. Your broker will facilitate the purchase and sale of SGBs on the stock exchange.
  • Search for Available SGB Issues: SGBs are issued by the Government of India in tranches throughout the year and are also available on the secondary market (stock exchanges). Check for available SGBs on your broker’s trading platform.
  • Place an Order: Once you’ve identified the available SGBs, you can place a buy order through your broker’s platform. Ensure you have sufficient funds in your trading account to complete the purchase.
  • Transaction Completion: After placing the buy order, the transaction will be executed based on the current market price of the bonds. Once executed, the SGBs will be credited to your Demat account.
  • Hold or Sell: You can decide to hold the bonds until maturity or sell them on the secondary market through the stock exchange. Selling before maturity can be done via your trading platform, similar to trading stocks.
  • Collect Interest and Redemption: SGBs pay interest semi-annually at a fixed rate, credited directly to your bank account. Upon maturity, the principal amount is also paid back to the account linked to your Demat account.

Digital Gold Vs SGB – Quick Summary

  • The main difference between digital and sovereign gold is that Digital Gold offers electronic ownership and easy trading of physical gold in small amounts. Whereas, Sovereign Gold Bonds are government securities providing interest and tracking gold’s market price.
  • Digital Gold allows electronic ownership of gold, making transactions simple and requiring no physical storage.Digital Gold is suited for small-scale investors due to the ease of buying and selling small quantities online.
  • Sovereign Gold Bonds are government securities that offer regular interest and are linked to gold prices.SGBs provide an alternative to physical gold, combining investment growth with periodic income through interest.
  • The primary distinction between Digital Gold and Sovereign Gold Bonds is that Digital Gold enables you to purchase small quantities of gold online, while Sovereign Gold Bonds act as government-backed savings schemes linked to gold prices and offer regular interest payments.
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Digital Gold Vs. Sovereign Gold Bond – FAQs

What is the Difference Between Digital Gold Vs. Sovereign Gold Bond?

The main difference between Digital Gold and SGBs is that Digital Gold lets you buy small amounts of gold online which is easy but SGBs are like special savings certificates from the government that are linked to the gold price.

What are the advantages of digital gold?

The main advantage of digital gold is that you can invest any amount you’re comfortable with whether it’s a little or a lot. You don’t have to worry about keeping the gold safe because it’s stored securely for you.

How To Invest In Gold Sovereign Bonds?

Invest in Sovereign Gold Bonds during designated issuance periods through banks, post offices, or authorized online platforms. They offer fixed interest and capital gains tax exemption at maturity. The bonds also provide security backed by the government. 

Can I convert digital gold to physical gold?

Yes, digital gold can be converted into physical gold. It is typically in the form of coins or bars, depending on the provider’s options and the amount of gold held. This conversion may incur additional fees or conditions.

What happens after 8 years of sovereign gold bond?

After 8 years, SGBs mature and investors receive the principal amount based on the current market value of gold. This allows for capital gains without tax liability if held to maturity.

We hope that you are clear about the topic. But there is more to learn and explore when it comes to the stock market, commodity and hence we bring you the important topics and areas that you should know:

Types of Gold InvestmentWhat is Primary Market?Bull call spread
features of sovereign gold bondWhat is Algo Trading?Silver Micro
How to Track upcoming IPOsPledged Shares MeaningWhat Is IPO Subscription?
VWAP vs TWAPStock Market AnalysisTarget-date Funds
Time Weighted Average PriceDepository ParticipantTop 10 Low Risk Mutual Funds for long term
Monopoly MarketWhat is Demat AccountMIS Order
Stock Market SectorsTypes Of BondsHow to Select Stocks for Intraday
What is Nifty?Differences Between Futures And OptionsHow to Become a Sub Broker?
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