SGB vs gold ETF vs physical gold

Gold in India trades at about ₹15,479 per gram (24 karat, September 2026), more than triple its price five years ago. If you want some of it in your portfolio, you have three doors: Sovereign Gold Bonds, Gold ETFs, and the metal itself. The right answer used to be simple. It is not anymore, because the SGB door has been quietly narrowed twice.

What each door actually is

A Gold ETF is a listed fund that holds physical gold in a vault; one unit is roughly one gram, and the price tracks the domestic rate closely. You buy and sell it on the exchange like a share.

An SGB is a government bond denominated in grams of gold. You get gold’s price movement plus 2.5% annual interest on the issue price, paid half-yearly, and redemption at the gold price after eight years.

Physical gold is coins, bars, or jewellery. You pay making charges or a dealer margin going in, accept a spread coming out, and carry storage risk throughout. As jewellery it is wonderful. As an investment it is the worst of the three by construction.

The SGB door, after two changes

First change: no new SGB tranche has been issued since February 2024. You can only buy existing series on the secondary market, where liquidity is thin and prices sometimes sit at odd premiums or discounts to fair value.

Second change, and the one many buyers have missed: from 1 April 2026, the tax-free redemption applies only to the original subscriber who holds to maturity. Buy an SGB on the secondary market today and your capital gain at redemption is taxed, at 12.5% if you held over 12 months. The single biggest SGB advantage, zero tax at maturity, no longer travels with the bond.

Put together: the instrument I recommended for years in my post on gold is now available only second-hand, and second-hand it loses its tax crown. An SGB can still make sense if a series trades at a real discount to gold value and you are happy to hold to maturity, since you still collect the 2.5% interest. But it is no longer the default answer.

What the default answer is now

For most investors, that is the Gold ETF. Fully liquid, available any day, priced transparently, and taxed at 12.5% on long-term gains after 12 months of holding. You give up the 2.5% interest the SGB paid and you pay a small expense ratio, roughly 0.5 to 1% a year. In exchange you get simplicity and the ability to rebalance, which matters because gold’s role in the allocation framework is a 5 to 10% band that you trim and top up as prices swing.

Physical gold keeps exactly one financial use: none. Buy it for weddings, for gifting, for the pleasure of holding it. Do not buy it expecting efficient returns; the making charges and the buy-sell spread eat several percent before the gold price has moved at all.

So which is actually better?

For a long horizon and a lump you will not touch, a discounted secondary-market SGB held to maturity still wins on interest, despite the tax change. For everything else, and for everyone who values the ability to rebalance, the Gold ETF is the practical default. The honest summary of 2026: the best gold instrument ever offered to Indian retail investors still exists, but only in the resale market, and without the feature that made it unbeatable.