Indian retail investors buy two asset classes badly, and for the same reason. The accessible product is not the efficient one.
Government securities and treasury bill yields
Government securities come first, bought through the retail route. A retail investor can hold central government securities, state loans and treasury bills directly, with no intermediary credit risk, through a retail participation platform run by the central bank [verify: RBI Retail Direct scheme terms, rbi.org.in]. The arithmetic to learn is the treasury bill's, because it is quoted as a price, and converting that price to a rate trips people.
A 91-day bill priced at ₹98.42 per ₹100 of face returns ₹1.58 per ₹100 over 91 days, a simple 91-day return of 1.6054%. Annualise on India's actual/365 convention and the yield is 6.4391%. Two errors are common here. The first is quoting the 1.61% as though it were an annual number. The second is annualising on a 360-day basis, which is the American discount convention and gives a different answer. India quotes treasury bills on an actual/365 basis and the two conventions must never be mixed in one comparison. After tax at a 31.2% effective slab rate, that 6.4391% is 4.4301%, which is the number to compare against a bank deposit taxed the same way.
Advertisement
Does a deposit ladder earn more?
A deposit ladder splits a lump into rungs maturing in successive years, and each maturing rung is reinvested for a fresh term. The usual claim made for it is that it earns more. Test the claim. Split ₹10,00,000 into five rungs of ₹2,00,000 at a card rate curve of 6.65%, 6.90%, 7.10%, 7.05% and 7.00% for one to five years, quarterly compounded, rolling each maturing rung for its remaining tenor at that tenor's own rate. At year five the ladder is worth ₹14,14,500, and a single five-year deposit of the whole ₹10,00,000 is worth ₹14,14,778. The ladder is ₹278 behind, or 0.028% of the deposit.
So the ladder doesn't earn more. What it earns is liquidity, and liquidity has a price you can compute. Suppose that at year two you need ₹2,00,000. With the ladder, the two-year rung matures on schedule and hands you ₹2,29,325. With the single deposit you break it and the penalty applies. The withdrawn slice earns the applicable rate for the run period less a penalty, here 6.90% less one point, so 5.90%. That gives ₹2,24,855 [verify: the penalty and the applicable-rate rule are set by each bank's own deposit terms; read them]. The ladder is worth ₹4,470 on that single event.
Read plainly, a ladder costs about three basis points over five years and pays out about 2.2% of the amount the first time you need cash early. It is an insurance premium, priced sensibly, and it should be sold as one, never as a yield trick.
Sovereign gold bond vs gold fund vs physical gold
Gold arrives in three containers. The metal is the same in all three. The containers are wildly different. Take ₹6,00,000 committed for eight years, gold at ₹6,000 a gram rising to ₹11,400, an implied compound growth of 8.354%.
A sovereign gold bond is a government obligation denominated in grams. It pays a coupon on the issue price and redeems at the prevailing gold price. The capital gain on redemption at maturity is exempt for an individual who subscribed at the original issue and held to maturity. From 1 April 2026 a bond bought on the exchange is taxed on redemption as a capital gain. No new tranche has been issued since February 2024, so a buyer today can only buy on the exchange [verify: the Sovereign Gold Bond scheme terms as notified by the RBI and the exemption as narrowed by the Finance Act, 2026, rbi.gov.in and incometaxindia.gov.in, checked October 2026]. ₹6,00,000 buys 100 grams. The 2.50% coupon is ₹15,000 a year gross, ₹10,320 after a top-slab tax, and rolled up at 6% over eight years the coupons come to ₹1,02,142. Redemption is ₹11,40,000 with no capital-gains tax. The route ends at ₹12,42,142. That is the original subscriber's route. A buyer on the exchange at the same ₹6,000 a gram pays 12.5% plus cess on the ₹5,40,000 gain at redemption, ₹70,200, and ends at ₹11,71,942.
A gold fund charging 0.50% a year, bought and sold with a 5 basis point spread each way, ends before tax at ₹10,94,095, pays ₹64,232 of long-term tax on the ₹4,94,095 gain, and lands at ₹10,29,863.
Physical gold at 8% making charges and 3% goods and services tax costs ₹6,674.40 a gram all in, so the same money buys only 89.90 grams, against the bond's 100. Ten grams vanish at the counter before the price does anything. Sold at a 2% assay discount it fetches ₹10,04,315, pays ₹52,561 of tax, and carries eight years of locker charges worth ₹29,692 rolled up, landing at ₹9,22,062.
| Route | After everything | Annualised |
|---|---|---|
| Sovereign gold bond | ₹12,42,142 | 9.52% |
| Gold fund | ₹10,29,863 | 6.99% |
| Physical | ₹9,22,062 | 5.52% |
The bond beats physical by ₹3,20,080, which is 53.3% of the entire original outlay, on identical exposure to identical metal over an identical period. Two of the three differences are structural and permanent: the coupon exists only in the bond, and the making charge exists only in the physical.
Can you still buy a sovereign gold bond?
One caveat carries the whole example, and it is the perishable-number rule doing real work. The bond is a policy instrument and its issuance is a policy decision. New tranches are issued when the government chooses to issue them and not otherwise, and the secondary market in existing tranches is thin, so a buyer today may face a wide spread or no primary issue at all [verify: RBI press releases and the Union Budget documents for current issuance]. The arithmetic above is the structure of the comparison and it will hold whenever the product is available. Whether it is available on the day you want it is a separate question you must answer on its own, and the same care applies to every government-set product on this page.