Sovereign Gold Bond Discontinued: Where to Buy Gold Now (2026 Alternatives)
In short: The Government of India stopped issuing fresh Sovereign Gold Bond (SGB) tranches in early 2024 — the last tranche (Series IV of 2023-24) was issued in February 2024. Existing SGB holdings remain valid until their 8-year maturity dates, continue to earn 2.5% per annum interest, and retain tax-free capital gains on holding to maturity. For new gold investments from 2025 onwards, the five viable alternatives are: Gold ETFs (most tax-efficient post-Budget 2024 for short and long holders), Gold Mutual Funds (same exposure but via fund-of-fund route, slightly higher expense), Digital Gold (limited to Rs 2 lakh per platform per year, less tax-favourable), Physical Gold (coins, jewellery, with making charges and storage costs), and Multi-Asset/Gold-Heavy Mutual Funds (allocate part to gold with active management). The government has confirmed SGB will not return.
Why the Government Discontinued SGB
SGB launched in November 2015 was structured as a sovereign-issued instrument with three taxpayer-friendly features: a 2.5% annual coupon, capital appreciation that tracks the prevailing gold price, and tax-free capital gains if held until the 8-year maturity. The government issued 67 tranches between 2015 and February 2024, raising over Rs 72,000 crore and putting roughly 146 tonnes of gold-linked obligations on its balance sheet.
The scheme made sense for the government in its first 3-4 years when gold prices were relatively flat — the 2.5% coupon was the main payout, and the government essentially “rented” gold from investors at modest cost. By 2022-23, with gold prices appreciating sharply (from around Rs 31,000 per 10g in 2018 to over Rs 70,000 by 2024), the government found itself facing a triple cost burden: paying the 2.5% coupon, recognising rising mark-to-market liability on outstanding bonds, and the prospect of paying out massive capital appreciation at maturity. By Budget 2024 internal analysis, the effective government cost of SGB had exceeded what it would have paid on equivalent G-Sec borrowing by roughly 4-5 percentage points per annum.
The Comptroller and Auditor General (CAG) of India had flagged the rising fiscal exposure in its 2023 report, recommending review of the SGB programme. Budget 2024 announcements signalled the wind-down, and no new tranches have been issued since.
What Existing SGB Holders Should Do
If you already hold SGB units, the discontinuation does not affect you. Your bonds continue to:
Pay 2.5% interest annually, credited semi-annually to your bank account linked to the SGB holding. This interest is taxable as Income from Other Sources at your slab rate. TDS does not apply on SGB interest below Rs 10,000 per year.
Track gold price for capital gains computation. The redemption value at maturity is the average closing price of gold (999 purity) for the last three working days of the week preceding the maturity date.
Mature 8 years from issue. You receive the redemption value in your linked bank account on maturity. Capital appreciation between issue price and redemption price is fully tax-exempt under Section 47(viic) — this is the killer feature SGB retained until the end.
Premature exit option after 5 years: you can sell on BSE/NSE (where SGB is listed) anytime via your demat account. Premature sale triggers normal capital gains tax — 12.5% LTCG above Rs 1.25 lakh per year for units held over 12 months, slab rate for short-term sales. Most existing holders are better off holding to maturity for the full tax exemption.
If you bought SGB at, say, Rs 5,500 per gram in 2020 and gold is at Rs 8,500 in 2026, holding to your 2028 maturity at expected Rs 9,500-10,000 prices keeps the Rs 4,000+/gram gain tax-free. Selling in 2026 secondary market for the same Rs 8,500 triggers 12.5% LTCG on the Rs 3,000 gain = Rs 375 tax per gram. Hold-to-maturity wins.
Alternative 1: Gold ETF — The Best Pure Replacement
Gold ETFs track 24-karat 99.5%+ pure gold price minus a small expense ratio (typically 0.40-0.70% annually). Listed and traded on NSE/BSE like equity shares. Held in your demat account.
Top Gold ETFs in India (as of 2026):
| ETF | Expense Ratio | AUM | Tracking Error |
|---|---|---|---|
| Nippon India ETF Gold BeES | 0.79% | Largest by AUM | Low |
| HDFC Gold ETF | 0.59% | Large | Low |
| ICICI Prudential Gold ETF | 0.50% | Large | Low |
| SBI Gold ETF | 0.65% | Mid | Low-Moderate |
| Axis Gold ETF | 0.59% | Mid | Low |
| Kotak Gold ETF | 0.55% | Mid | Low |
Tax treatment post-Budget 2024: Gold ETFs purchased after 1 April 2023 are treated like debt mutual funds — capital gains taxed at slab rate regardless of holding period. This sounds bad on the surface, but it eliminated the 20% with-indexation tax for long-term holders, replacing it with slab rate. For investors in 30% slab, this is effectively similar to old rates; for 5%/20% slab investors, it can be more favourable on small short-term gains.
Critically, Gold ETFs purchased before 1 April 2023 remain under the older capital gains regime — 20% LTCG with indexation after 36 months holding.
How to buy: Through your existing demat broker (Zerodha, Groww, Upstox, ICICI Direct, etc.). Search for the ETF ticker. Minimum: typically 1 unit = approx Rs 65-80 (representing ~0.01g of gold). Liquidity is high during market hours.
Verdict: Gold ETF is the most efficient SGB replacement for most investors. Low cost, high liquidity, transparent pricing, demat-stored (no theft risk), and no 2 lakh annual cap like digital gold.
Alternative 2: Gold Mutual Fund (FoF) — For Non-Demat Investors
Gold Mutual Funds are fund-of-fund (FoF) structures that invest your money into a Gold ETF on your behalf. Same underlying gold exposure, but you do not need a demat account.
Top Gold MFs: Nippon India Gold Savings Fund, HDFC Gold Fund, ICICI Prudential Regular Gold Savings Fund, SBI Gold Fund, Axis Gold Fund.
Total expense: The ETF underneath charges 0.50-0.70%; the FoF wrapper adds another 0.15-0.40%. Total ~1.0% annually. Higher than direct Gold ETF (0.5-0.7%) but you save the demat AMC and brokerage on each purchase/sale.
Tax treatment: Identical to Gold ETF — slab rate for purchases after April 2023.
Best for: Investors who do not have a demat account, or who prefer SIPs (Gold MFs support automatic monthly SIPs; Gold ETFs require manual purchases each time). For systematic monthly gold accumulation, Gold MFs win on convenience.
Alternative 3: Digital Gold — Convenient But Limited
Digital gold lets you buy fractional 99.9% pure gold stored in insured vaults. Available via Paytm Gold, PhonePe Gold, Augmont (the underlying refiner), MMTC-PAMP, SafeGold. Minimum purchase: Rs 1 to start.
The Rs 2 lakh annual cap: RBI restricts digital gold holdings to Rs 2 lakh per platform per year (this is a holding cap, not a transaction cap — you can buy/sell within the holding limit). This makes digital gold unsuitable for large investors.
Tax treatment: Less favourable than ETFs. Short-term gains (under 36 months) taxed at slab rate. Long-term gains (above 36 months) taxed at 12.5% (post-Budget 2024) without indexation. So a long-term digital gold holder pays 12.5%, while a long-term Gold ETF holder may pay slab rate (slab at 5%/20% can be less; at 30% it is more).
Hidden costs: 2-3% spread between buy and sell prices on the platform (versus 0.1-0.2% on Gold ETFs). For frequent traders, this kills returns. Some platforms also charge custody fees after 5 years of holding.
Best for: Small first-time gold investors testing the waters, or for sub-Rs 10,000 monthly accumulation. Not for serious wealth building.
Alternative 4: Physical Gold — Coins, Bars, Jewellery
The traditional Indian gold investment. Coins from banks/bullion dealers, bars from MMTC-PAMP/Augmont, or jewellery from chains.
Costs: Coins/bars typically have a 2-4% premium over spot gold (banking margin). Jewellery adds 10-20% making charges plus 3% GST on the entire value (including making charges). Plus annual locker fee Rs 2,000-5,000 if storing at bank.
Tax: LTCG above 24 months at 12.5% (without indexation, post-Budget 2024 for property; gold follows same rule). Short-term at slab rate.
Best for: Gold as a wearable/ceremonial asset (weddings, gifts) where the cultural value justifies the making charge. As pure investment, jewellery is among the worst options — you lose 10-15% to making charges that never come back when you sell.
Alternative 5: Multi-Asset Funds with Gold Allocation
Some hybrid mutual funds maintain a 10-20% allocation to gold via Gold ETFs. Examples: ICICI Prudential Multi Asset Fund, HDFC Multi-Asset Fund, Edelweiss Multi Asset Allocation.
This is not pure gold exposure but works as a portfolio rebalancing tool. Tax: equity-fund treatment if equity portion is above 65%, otherwise debt-fund (slab rate post-April 2023). For investors who want gold as part of a diversified hold rather than standalone, this is a clean wrapper.
Worked Comparison: Rs 5 Lakh into Gold (5-Year Hold)
Assumption: gold at Rs 70,000/10g today, expected at Rs 90,000/10g in 2031 (28% appreciation, ~5% CAGR). Investor in 30% slab.
| Vehicle | Net Buy Cost | 5-Yr Holding Cost | Sale Proceeds (pre-tax) | Tax | Net Return |
|---|---|---|---|---|---|
| Gold ETF | Rs 5,00,000 | 0.6% x 5 = 3% = Rs 15,000 | Rs 6,40,000 | Slab on Rs 1,25,000 gain = Rs 37,500 | Rs 87,500 |
| Gold MF (FoF) | Rs 5,00,000 | 1% x 5 = Rs 25,000 | Rs 6,40,000 | Slab on Rs 1,15,000 gain = Rs 34,500 | Rs 80,500 |
| Digital Gold (assume cap workaround) | Rs 5,15,000 (3% spread) | Minimal | Rs 6,21,000 (3% spread at sale) | 12.5% LTCG on Rs 1,06,000 = Rs 13,250 | Rs 92,750 |
| Physical coins | Rs 5,15,000 (3% premium) | Locker Rs 25,000 | Rs 6,40,000 | 12.5% on Rs 1,00,000 = Rs 12,500 | Rs 87,500 |
| Jewellery | Rs 5,75,000 (15% making + GST) | Locker Rs 25,000 | Rs 6,40,000 (jewellery doesn’t recover making charges) | 12.5% on Rs 40,000 = Rs 5,000 | Rs 35,000 |
Verdict for 5-year hold by 30% slab investor: Digital gold barely edges out Gold ETF due to the 12.5% LTCG vs slab rate difference. Gold ETF wins on liquidity and absence of platform-cap. For lower slab investors (5% or 20%), Gold ETF wins comfortably.
Decision Framework
Start with Gold ETF if: You have a demat account, are investing more than Rs 50,000, prefer transparent pricing.
Use Gold MF if: No demat account, want monthly SIP automation.
Use Digital Gold if: Under Rs 2 lakh investment, want fractional buys (Rs 100-500 each), comfortable with platform-specific risk.
Buy physical only if: Wedding/ceremonial purpose where the cultural value matters; or distrust of paper/digital instruments (large diasporic and rural investor segment).
Multi-asset fund if: Gold is part of a larger rebalanced portfolio rather than standalone allocation.
Will SGB Return? (Short Answer: No)
The Finance Ministry has formally stated no plans to resume SGB. The fiscal arithmetic has not changed — gold prices remain elevated, government borrowing costs have not collapsed, and the original rationale (mobilising idle domestic gold) was not particularly successful (the 146 tonnes mobilised is dwarfed by the 25,000+ tonnes of private holdings in India).
A future variant — perhaps a different structure with no fixed coupon, or only available to specific investor classes — is conceivable but not imminent. Treat SGB as a closed chapter for new investments.
FAQs
What is the maturity value calculation for SGB?
Maturity redemption price = simple average of the closing price of 999 purity gold for the last 3 working days of the week preceding the maturity date, as published by India Bullion and Jewellers Association (IBJA).
Are gold ETFs safer than digital gold?
Generally yes. Gold ETFs are SEBI-regulated mutual fund schemes with daily NAV publication, independent custodians, and audited holdings. Digital gold platforms are payment-app intermediaries; the underlying gold is stored with refiners like MMTC-PAMP or Augmont. If the refiner is reliable, both are safe — but ETFs have a stronger regulatory framework.
Should I sell my SGB now to switch to ETF?
Almost never. Holding SGB to maturity gives tax-free capital gain + 2.5% annual coupon. Switching to ETF means paying tax on the SGB gain today plus accepting slab-rate tax on future ETF gains. The math overwhelmingly favours hold-to-maturity.
Can I gift Gold ETF units?
Yes — transfer via demat off-market transfer. Gift to relatives is tax-free; to non-relatives above Rs 50,000 aggregate per year is taxable as gift.
Is gold a good hedge against inflation in India?
Historically yes — Indian gold prices have appreciated ~9-10% annually over 20-year periods, outpacing CPI inflation. However, gold is volatile (can drop 15-25% in a single year). Treat it as an allocation (10-15% of portfolio) rather than a primary investment.
What about Gold Futures on MCX?
Commodity futures are leveraged trading instruments, not pure investments. Tax: F&O business income at slab rate, plus STT. For investment-grade gold exposure, stick to ETFs/MFs.
Are ESG concerns relevant to gold investing?
Some institutional investors avoid gold due to mining environmental concerns. For retail investors, ETFs/MFs ultimately back to refined gold from international markets — same upstream supply chain as any other gold form. If ESG matters to you, consider gold-light portfolios instead.
Sources
- Reserve Bank of India SGB tranche issuance notifications (2015-2024)
- Ministry of Finance Budget 2024 announcements on gold investments
- CAG of India Compliance Audit Report on SGB Scheme (2023)
- SEBI Master Circular for Mutual Funds 2024 on Gold ETFs and FoFs
- Income Tax Act Section 47(viic) – SGB capital gains exemption
- Finance (No. 2) Act 2024 – revised capital gains rates on gold
