SGBs lose tax glitter after Budget 2026, tumble 8-10%

Mumbai : Several series of sovereign gold bonds (SGBs) fell between 8% and 10% Monday with very few buyers in the market.
Investors stayed away from the secondary market after the government withdrew tax benefits. In Sunday’s budget, finance minister Nirmala Sitharaman announced that exemption from capital gains tax at maturity would be removed for SGBs purchased in the secondary market.

SGBs fell due to the combined effect of a drop in gold prices and removal of the tax advantage, said Nirav Karkera, head of research at wealthtech platform Fisdom. He expects this to be a knee-jerk reaction and bond prices to settle in a few days as gold stabilises and investors rework taxation.

Sovereign gold bonds, issued by the Reserve Bank of India from 2015, have a tenure of eight years. The last series were issued in February 2024. The government pays an annual interest of 2.5% on these bonds, once every six months. There is no expense ratio or storage cost charged and the bonds are listed on stock exchanges. The government offers a buyback option once every six months after the first five years. At the end of the eighth year, money is returned to the investor at the prevailing price of gold. The government move comes amid the rally in gold prices, which will sharply increase its outgo when the bonds are redeemed.

With the tax benefit being taken off, wealth managers believe investors will have to redo their math before buying these bonds.
“Look at the market price of gold, consider the interest, time for maturity and eliminate the tax advantage. If this works cheaper than spot prices and you want to allocate to gold, you could consider these bonds,” said Amol Joshi, founder of Plan Rupee.
Brokers believe with the tax benefit gone, investors would be better off buying gold ETFs, where there is assurance of liquidity and flexibility to enter or exit, and stagger investments. “SGBs’ disadvantage is that they will be compulsorily redeemed and at that time investors will have to relocate to gold,” said NS Ramaswamy, head of commodities at Ventura Securities.