Gold ETF vs Physical Gold: How to Own Gold After Sovereign Gold Bonds

That door has closed. The government has not issued a new SGB tranche since February 2024, and in the 2025 Budget it confirmed there are no plans to restart the scheme. As gold prices climbed, paying investors the higher price plus 2.5% interest had turned SGBs into costly borrowing for the government.

Which reopens a question that had a settled answer for years: how to invest in gold in India now. There is no perfect replacement for the SGB. But there are sensible options, and choosing between them comes down to three things: cost, tax, and how you plan to hold the metal.

What ended, and why it matters

The SGB was not a small experiment. Across 67 tranches since 2015, Indians put in around ₹72,000 crore, close to 147 tonnes of gold. Early investors did very well. Several of the first tranches, now maturing, have returned more than 200% before the interest is even counted.

If you already hold SGBs, none of this changes them. Existing bonds run to their eight-year maturity, with an exit option after five years, and the tax-free treatment at maturity still stands for those who subscribed at issue and hold to the end. What you cannot do is buy new ones. Anyone starting fresh has to weigh the sovereign gold bond alternatives, and they are not interchangeable.

Gold ETFs: the closest thing to a replacement

For someone who wants gold as an investment rather than an ornament, a gold ETF is the most efficient option on the table now. It is a fund listed on the NSE and BSE that holds physical gold of 99.5% purity, with each unit worth roughly one gram. You buy and sell it through a demat account, the way you would a share, and the price tracks gold through the trading day.

What you give up against the SGB is the 2.5% interest and the tax-free exit. What you get is liquidity and a cleaner tax position than physical gold. There is no GST when you buy a gold ETF and no securities transaction tax. You pay a small annual expense ratio, usually well under 1%, and that is most of the cost.

The tax is worth knowing, because it changed in the last Budget. For units bought on or after 1 April 2025, hold for more than 12 months and the gain is long-term, taxed at a flat 12.5% without indexation. Sell within 12 months and the gain is added to your income and taxed at your slab rate. That 12-month line for long-term status is the ETF's quiet advantage, and it stands out most when you set it against physical gold.

Physical gold: the most expensive way to own it

Most Indian households already own gold, and most of that is jewellery. As an investment, jewellery is the least efficient form. You pay 3% GST at purchase, then making charges that can run from 8% to well over 20%, and when you sell, you rarely get those making charges back. Part of the value simply disappears into the craftsmanship.

Coins and bars are cleaner, since there are no making charges to speak of, but the 3% GST still applies and you take on storage, security, and the purity questions that come with holding metal yourself.

The tax also runs longer. Physical gold is unlisted, so it reaches long-term status only after 24 months, not 12. Hold it beyond that and the gain is taxed at 12.5% without indexation; sell sooner and it is taxed at your slab rate. A gold ETF and a coin can hold the exact same metal, and the ETF still gets to the lower long-term rate a full year earlier.

Digital gold vs gold ETF: convenient, but mind the gap

Digital gold is the option every payments app pushes at checkout. You can buy a few hundred rupees of it in seconds, it is backed by physical gold in a vault, and you can sell it or take delivery later. For small, casual amounts, it is convenient.

The catch is regulation. In the digital gold vs gold ETF comparison, the ETF sits inside the SEBI framework, with a fund, a custodian, and disclosure rules. Digital gold does not. It is not regulated by SEBI or the RBI in the same way, which is why SEBI has stopped registered advisers and brokers from offering it. You are relying on the platform and its vaulting arrangement rather than a regulated structure. On tax it is treated like physical gold, with the same 24-month holding period and 3% GST. So you take the tax profile of physical gold without the oversight of an ETF.

Gold ETF vs physical gold: which is right for you

For pure investment exposure, the gold ETF wins on cost and tax for most people: no making charges, no GST, and long-term status in half the time. Physical gold earns its place for reasons that are not really financial. It can be worn, gifted, passed down, and held with no digital trail, and for many families that matters more than a point of tax.

A clean way to hold it: keep your gold allocation as an investment in an ETF, and treat the jewellery in the locker as jewellery, not as part of that allocation. If you would rather not open a demat account, a gold mutual fund invests in gold ETFs on your behalf and lets you run a monthly SIP, at the cost of the longer 24-month window for long-term tax.

How much gold should you hold

This is the part the yield chase rarely reaches. Gold does one job in a portfolio and does it well: it holds its value, and often rises, when equities and the rupee are under stress. It is insurance, not an engine. Over long stretches it will not outrun a good equity portfolio, and it pays you nothing to wait, which is exactly what the SGB's 2.5% coupon quietly fixed.

For most investors, somewhere between 5% and 15% of the portfolio is enough to get the diversification benefit without letting a non-productive asset take over. The right figure inside that range depends on your age, your other holdings, and how much volatility you can sit through. That is a conversation to have with an adviser, not a rule to copy.

Where this leaves you

The Sovereign Gold Bond was a rare thing. It paid you to own gold and taxed you nothing to leave. Its replacements make you choose between cost, convenience, and control instead. That is the trade now, and it is worth making on purpose rather than at a payments-app checkout.

Because gold was never meant to make you rich. It is there so that when everything else falls, something in the portfolio holds.

Frequently asked questions

Can you still buy sovereign gold bonds in 2026?

No. The RBI has not issued a new tranche since February 2024, and the government has confirmed it is not restarting the scheme. Existing bonds run to maturity, and you can only buy older ones on the secondary market, where the tax-free redemption benefit no longer applies to a later buyer.

For tax, is a gold ETF better than physical gold?

Usually. A gold ETF reaches long-term status after 12 months, against 24 months for physical or digital gold, and it carries no GST or making charges. Both are taxed at 12.5% without indexation once they are long-term.

Is digital gold safe?

It is backed by vaulted physical gold, but it is not regulated by SEBI or the RBI the way ETFs and SGBs are. For small amounts it is convenient. For a serious allocation, the regulatory gap is worth weighing.

Do gold ETFs pay interest the way SGBs did?

No. The SGB paid 2.5% a year on top of the gold price. Gold ETFs, gold funds, physical, and digital gold pay nothing. Your return depends entirely on the gold price.

How much gold should I hold?

A common range is 5% to 15% of the portfolio, held as a hedge rather than a growth asset. The right figure depends on your age, goals, and other holdings, so it is best set with an adviser.

If you are rethinking how you own gold now that the SGB is gone, or how much of it belongs in your wider plan, SELEQT can help you work it through in the context of your full portfolio.