Sovereign Gold Bond Discontinued: How to Invest in Gold Without SGB?

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The announcement of the Union Budget 2025-26 on 1st February, discontinuing the sovereign gold bond, was acknowledged by the finance minister, Ms Nirmala Sitaraman, considering the higher borrowing cost involved.

This analysis highlights the sovereign gold bond upcoming issues for the current investors of SGB after its discontinuation in 2025.

Likewise, it will provide you with other ways to invest in gold securities and conclude with key takeaways that will tell you everything you need to know about the topic.

Hot Read: Gold Mutual Funds vs. Gold ETF Which One is Best for You?

Why was the Sovereign Gold Bond Scheme Discontinued?

The Sovereign Gold Bond (SGB) scheme was discontinued as it became way too expensive for the government to manage. When the scheme was first introduced on 13th November 2015 by RBI (Reserve Bank of India), the purpose was to raise money so that it could help in reducing gold imports. But, as the price of gold bonds went up, the government had to pay more when people redeemed their bonds, making it a costly option for borrowing money.

Ajay Seth, the Economic Affairs Secretary, mentioned that although Rs.18,500 crore was set aside for SGBs in the FY25 Budget (down from Rs.26,852 crore in the interim budget), no new SGBs were issued this year. The last issuance was in February 2023 for Rs.8,008 crore. Due to the rising costs, the government decided to stop the scheme.

Must Read: Will Gold Rate Increase or Decrease in Future 2025?

What Happens to Existing SGB Investors?

If you had invested in a sovereign gold bond, you need not panic. You will continue to receive the promised 2.5% annual interest until the maturity of the bond. If you purchased your bonds between May 2017 and March 2020, there is also an option to redeem them prematurely under the RBI’s redemption window, which has been extended until March 2025.

However, do keep in mind that if you choose to redeem early, there might be some tax implications to consider:

• Interest: The semi-annual interest you earn on SGBs is taxable under the head "Income from Other Sources" at your applicable tax slab rate.
• Capital Gains: If you hold the bond until maturity (8 years), your capital gains are exempt from tax. However, if you redeem prematurely, the capital gains might be subject to tax, depending on how long you have held the bond.

While SGB schemes may be gone, gold bonds remain a valuable investment and there are many ways to invest in it. Check out the alternatives to invest in gold in place of a sovereign gold bond.

Top Ways to Invest in Gold Without Sovereign Gold Bonds

Even though the government has discontinued the Sovereign Gold Bond scheme, there are still plenty of options for you to invest in gold. Here is a list of alternatives that you can invest in 2025 via SIP (Systematic Investment Plan):

1. Gold ETFs (Exchange Traded Funds)

Gold ETFs are one of the best alternatives to SGBs. These are a type of Mutual Funds that are designed to track the price of gold investments, which are then traded on the Indian stock exchange market, making them easy to buy and sell. Here is why they make a good option for investors:

• Liquidity: Gold ETFs are highly liquid, meaning you can buy or sell them easily through your stockbroker, just like stocks.
• No Storage Worries: Unlike physical gold, you do not need to worry about storing or insuring your gold due to the fear of theft.
• Lower Costs: There are no additional premiums or making charges involved as with physical gold.
• Transparency: The price of the gold ETFs shows the recent or ongoing market price of gold bonds, and the fund’s holdings are regularly audited.

The table below gives you the 3 best gold ETFs to invest in via SIP in India:

2. Gold Mutual Funds

Gold funds or gold savings funds pool investors' money to buy gold assets such as gold ETFs or gold mining stocks. These are the type of mutual funds allow you to invest in gold without having to directly own the metal or manage a gold ETF on your own.

The following are the advantages of investing in gold mutual funds in 2025:

• Diversification: These types of funds invest in a combination of gold ETFs and other related assets, giving you broader exposure to the gold market.
• Professional Management: Managed by expert MF analyst, making it an easy option for people who prefer not to manage their investments in gold funds.
• Lower Entry Barriers: You can easily start your investments in the best gold mutual funds via SIPor lumpsum.

Check out the 3 top gold mutual funds to invest in India via SIP:

3. Physical Gold (Gold Coins & Gold Bars)

Are you still a believer in buying gold traditionally? If yes, you can buy gold coins and gold bars from banks and authorised dealers. However, here are a few challenges that you can prepare yourself for:

• Storage: You need to store the gold securely, either in a safe at home or in a bank locker.
• Premiums: Physical gold often comes with making charges, which increase the total cost.
• Risk of Theft: It is difficult to protect physical gold from being robbed.
  
  

4. Digital Gold

Another popular option is digital gold. Offered by Online Platforms, digital gold allows you to invest in gold online. Here is how it works:

• Convenience: You can buy and sell gold in small quantities at any time.
• Security: Your gold investment is safely secured using digital technology, meaning you should not worry about physical storage.
• Low Entry: You can start investing with as little as Rs.1, which makes it a highly accessible option for all investors.

What is the Tax Rate on Gold Investments?

The tax on gold investments in 2025 depends on how long you hold the gold and the type of gold investment. Here’s a simple breakdown:

1. Physical Gold (Gold Coins, Bars, Jewellery)

• Short-term (Less than 3 yrs.): By selling the gold within 3 years of buying it, the profit will be taxed at 20% with indexation (which adjusts for inflation) or 10% without indexation, whichever is better for you.
• Long-term (More than 3 years): If you keep the gold for more than 3 years, your profit will be taxed at 20% with indexation.

2. Gold ETFs and Gold Mutual Funds

• Short-term (Less than 3 years): If you sell these within 3 years, the profit is taxed at 15%.
• Long-term (More than 3 years): If you hold them for more than 3 years, your profit will be taxed at 20% with indexation.

3. Sovereign Gold Bonds (SGBs)

• Interest: The interest you earn from SGBs (around 2.5% per year) is taxed as regular income, based on your income tax slab.
• Capital Gains: If you hold the SGBs for the full 8 years (till maturity), there is no need to pay tax on the profit. But if you sell them earlier:
• Short-term: If sold within 3 years, it’s taxed like short-term capital gains.
• Long-term: If sold after 3 years, it’s taxed at 20% with indexation.

4. Digital Gold

   Tax on digital gold is similar to physical gold. If you sell it after holding it for more than 3 years, the profit will be taxed at 20% with indexation.

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Sovereign Gold Bond: Key Takeaways

In short, the Sovereign Gold Bond scheme is now discontinued, you still have several options to invest in gold:

• Whether it’s through Gold ETFs, Gold Mutual Funds, Digital Gold or Physical Gold, each option has its advantages and drawbacks.
• It is better to choose your investments based on goals, risk tolerance and how hands-on you want to be with your investment.
• If you are looking for a hassle-free, liquid investment, Gold ETFs and Gold Mutual Funds are great options to consider.
• For those who prefer owning gold directly, digital gold and physical gold are viable alternatives.
• As gold continues to be a safe haven investment, diversifying a portion of your portfolio into gold remains a smart decision, even without SGBs.

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