Difference between Physical Gold v/s Sovereign Gold Bond

 

Parameter	Physical Gold	Sovereign Gold Bond
Definition	Physical gold refers to the physical form of gold that is bought in the form of coins, bars, or jewelry.	Sovereign Gold Bonds are issued by the Reserve Bank of India (RBI) on behalf of the Indian government and can be held in either physical or demat form.
Investment Amount	There is no minimum investment amount for physical gold, but the cost of a single coin, bar or jewelry can be expensive.	The minimum investment amount for Sovereign Gold Bonds is INR 5,000 and in multiples of INR 1,000 thereafter.
Security	Physical gold may be lost or stolen and is not insured.	Sovereign Gold Bonds are held in demat form and are insured by the government, providing a higher level of security.
Liquidity	Physical gold can be easily sold or traded for cash.	Sovereign Gold Bonds have a lock-in period of 8 years, with the option of selling or trading after the 5th year. This reduces their liquidity compared to physical gold.
Returns	Physical gold prices fluctuate based on market conditions and can generate returns through price appreciation.	Sovereign Gold Bonds have a fixed rate of return, set by the RBI, and provide returns through coupon payments.
Taxation	Physical gold is taxed under the Capital Gains Tax (CGT) if it is sold for a profit.	Sovereign Gold Bonds are taxed as long-term capital gains if held for more than 3 years.

Conclusion:

Physical gold is a more liquid form of investment, but its value is subject to market conditions and it is not insured.

Sovereign Gold Bonds provide a higher level of security and have a fixed rate of return, but they have a lock-in period and may not provide as much returns as physical gold.

Both options have their own pros and cons and the best option depends on the individual's investment goals, risk tolerance, and tax situation.