Paper gold vs physical gold - which is smarter?
Should you buy Sovereign Gold Bonds or physical gold (jewelry, coins, bars)? This is a crucial decision that can impact your wealth significantly over time. Physical gold has emotional and traditional value, but SGB offers substantial financial advantages. Let's break down the numbers and help you decide.
For pure investment, SGB is significantly better (15-30% more value due to no making charges + interest + tax benefits). For jewelry/emotional purposes, physical gold has its place.
| Metric | Sovereign Gold Bond | Physical Gold | Winner |
|---|---|---|---|
Purity Guarantee SGB guarantees 99.9% purity | 999 (24K) assured | Varies (need hallmark) | |
Making Charges Huge savings on making charges | None | 8-25% for jewelry | |
Storage Cost No storage hassles with SGB | None (demat) | Locker rent / risk | |
Interest Income Physical gold earns nothing | 2.5% p.a. | None | |
Can Wear/Use Jewelry has aesthetic value | No | Yes (jewelry) | |
Emotional Value Cultural significance of physical gold | Low | High (traditional) | |
Resale Value No deduction on SGB redemption | Full gold value | Minus making charges | |
Tax on Sale Both taxable for secondary SGB buyers | Tax-free (original subscribers only) | 12.5% LTCG (2+ years, no indexation) |
**The Making Charges Problem** When you buy gold jewelry, 8-25% goes to making charges that you never recover. A ₹1,00,000 gold chain might have only ₹75,000 of actual gold. With SGB, 100% goes into gold value.
**Storage and Safety** Physical gold needs secure storage - bank lockers cost ₹3,000-15,000/year and have access limitations. Home storage carries theft risk. SGBs sit safely in your demat account.
**The 2.5% Advantage** SGB pays 2.5% annual interest on your investment. ₹10 lakh in SGB earns ₹25,000/year. Physical gold earns nothing - it's a non-productive asset.