Whether it’s for investment, weddings, festivals, or family traditions, gold has always held a special place in the hearts of Indians. Over the years, new ways to invest in gold without owning it physically have gained a lot of popularity, such as Gold ETFs, mutual funds, sovereign gold bonds (SGBs), and digital gold. Often many people lump these options under the label ‘digital gold,’ because they all give us the opportunity to invest in gold without physical ownership, but they aren’t exactly the same.
Each of them serves a different purpose and works in its own way. With Diwali and Dhanteras just around the corner, you might be wondering about digital gold advantages and disadvantages and how you can start investing in it. Here’s everything you need to know about digital gold to help you decide whether it’s the right choice for your investment journey!
What is Digital Gold ?
So what is digital gold investment exactly? Well, digital gold is one of the many ways you can invest in the yellow metal without the headaches that come with physical ownership. Every time you buy gold digitally, the seller makes sure that an equivalent amount of 24 Karat physical gold is stored in secure and insured vaults on your behalf.
You can buy digital gold through various online platforms such as Google Pay, Paytm, and Amazon Pay starting from as little as 1 Rupee. These digital wallets and fintech apps don’t sell you the gold directly, rather they connect you with partners like SafeGold, Augmont Gold, or MMTC-PAMP, who handle the gold’s purchase, storage, and safekeeping.
The price of gold depends on the prevailing market rates, and you can use the apps to keep track of prices in real time. You don’t need to have a Demat account to start investing so you can easily buy or sell digital gold anytime. Companies also give you the option to convert digital gold into physical gold, where you can have the gold delivered as coins or bars to your doorstep or exchange it for jewellery at partner jewellers.
Advantages of Digital Gold
Let’s have a look at the many advantages of digital gold investments:
Purity and Safety
Owning physical gold comes with certain downsides. One of the biggest concerns is related to the purity of gold. With digital gold, you are guaranteed to own 24 Karat pure gold which is managed by trusted providers. Another concern that comes with physical ownership is the storage and security of the gold. You may need to buy an expensive locker, invest in insurance, or rent a locker to protect your gold from theft. This just adds extra costs and inconvenience to owning physical gold.
On the other hand, digital gold eliminates the need for expensive storage since the gold you buy is safely kept in high-security vaults managed by reliable and professional custodians. For example, the company SafeGold is partnered with Brinks – a well-regarded global leader in security and vault management, who makes sure that your gold is insured and safe.
Low Minimum Investment Amount
Gold is generally associated with high upfront costs, but there are no such concerns when it comes to digital gold. Investors can buy even Re. 1 worth of gold on platforms such as Google Pay or Rs. 5 on Amazon Pay, which makes digital gold very affordable.
High Liquidity and Accessibility
Unlike other gold investment options such as gold ETFs, you don’t need to have a Demat account to invest in digital gold. That’s why you can buy or sell gold instantly, 24/7, directly through fintech apps or digital wallets. There are no waiting periods, trading hours, or complicated procedures to follow, just the transactions based on the market price of gold at the time.
Can Be Used to Secure Loans
You can easily pledge your digital gold holdings as collateral for any personal or business loans you need.
Can Be Converted To Physical Gold
This benefit can differ from platform to platform, however, most of them allow you to convert your digital investment into physical gold. You can redeem your holdings into 24 Karat gold coins and bars and have them delivered to your address. Some platforms even have tie-ups with jewellery companies and allow you to convert digital gold into any jewellery of your choice.
Disadvantages of Digital Gold
Digital gold comes with certain risks and cons as well. Here are the disadvantages of digital gold:
GST (Goods and Sales Tax)
Just like physical gold, digital gold attracts a GST of 3% on every purchase. This means that every time you buy digital gold you’ll need to pay above the market value, which ultimately adds to the overall cost of your investment. This 3% is non-recoverable, so even when you sell your digital gold there’s no way to claim it back. 3% may seem like an insignificant amount for small investments but the impact it has on larger investments is very noticeable.
Lack of Regulation
Other gold investment options such as gold mutual funds and ETFs are regulated by SEBI, whose guidelines help protect the investor’s interests. However, when it comes to digital gold, there is a lack of direct regulation of SEBI or RBI. Digital gold is not regulated under any rules governing stock exchanges. Since selling unregulated products through stock exchanges is not allowed, brokers can’t offer digital gold.
Storage Costs
The security companies that act as custodians charge a fee, so even though you don’t need to buy your own storage, you’ll still need to pay the storage costs. Up to a certain period, this fee is not charged, for example, SafeGold doesn’t charge any storage fee for up to 5 years. After the period, 0.3 to 0.4% can be levied. This period and the cost differ from seller to seller.
Capital Gains Tax
Capital gains tax depends on how long you hold your investment. In the case of digital gold, short-term capital gains tax applies if you sell your investment within three years. Your STCG will be added to your income and taxed as per your income tax slab. A long-term capital gains tax is levied when you sell your digital gold after 3 years at 20% with indexation benefits.
Conversion Charges
A digital gold investment works best in its virtual form. Even though you have the option to convert it into physical gold, doing so comes with expenses such as delivery and making charges, which can harm your returns. You can’t indefinitely hold your investment either, so at the end of the tenure, you’ll need to either redeem or convert it.
Maximum Investment Limit
Some platforms allow you to only invest a specific amount of money or a certain quantity of gold. For example, if you buy digital gold through Amazon, you can only store a maximum of 30 grams of gold. On the other hand, Google Pay allows you to buy and store digital gold based on the amount or quantity without a strict upper limit. However, many fintech platforms cap the total value of gold holdings at Rs. 2 lakh.
How to Invest in Digital Gold
Before we get into the steps involved in digital gold investing, it’s important to note the difference between platforms and sellers. Platforms are intermediaries. They allow you to buy, track, and manage your gold investments easily and conveniently. Some examples of platforms are Google Pay, Paytm, PhonePe, and Amazon Pay. On the other hand, sellers are companies like SafeGold, MMTC-PAMP, and Augmont Gold, who provide the gold you purchase and store it securely on your behalf.
These are the three digital gold companies operating in India today. Platforms have partnerships with one or more sellers and don’t actually sell you the gold directly. For example, when you buy digital gold through Google Pay, the seller is their partner company MMTC-PAMP. Similarly, SafeGold is partnered with Amazon. As an investor, you have the option to buy digital gold through one of these popular platforms or directly through the seller’s website.
With that, here’s how you can start your digital gold investment journey:
- Select the platform or the seller.
- Register yourself on the platform. You’ll be required to input details like your phone number, PAN, and other KYC details.
- You’ll be redirected to the screen that asks you the amount you want to invest or the quantity of gold in grams that you wish to buy. Enter the quantity or amount and make the payment from your digital wallet, card, or UPI.
- Your account will be updated instantly and can be accessed anytime you want. You can monitor your investment, buy more gold, or sell your holdings at any time you like.
Who Should Invest in Digital Gold?
Gold has historically been a stable asset during uncertain times and in high inflationary periods, which makes it a great option to diversify your investment portfolio. The same benefit applies to digital gold, so investors looking to buy gold physically should strongly consider investing digitally to do away with the hassle of physical ownership. However, it’s important to remember that digital gold is not the only way you can virtually invest in the yellow metal.
Before you start, it could be wise to understand the other options such as gold mutual funds, gold ETFs, and sovereign gold bonds. Each option works differently, has its own pros and cons, and is suitable for varying financial goals, investment horizons, and risk tolerances. You can read up on these alternative methods before making the final decision.
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Conclusion
A digital gold investment gives you a modern and more convenient way to invest in gold. It offers several advantages over physical gold investments, however, it does come with certain disadvantages as well. You’ve read all about the digital gold advantages and disadvantages, so you are better equipped to make a more informed decision. But keep in mind that digital gold is not the only avenue of investing in the precious metal digitally. You can research different options like gold mutual funds and ETFs before you make your investment this Diwali.
