Digital Gold

Gold is considered one of the safest investment options throughout centuries. Digital Gold was first offered to consumers in India in 2017 by e-wallets such as Paytm and PhonePe. It allows you to invest in gold without worrying about its storage and safety.

What is Digital Gold?

Digital Gold is a product that enables you to purchase gold even in the smallest quantities and without the hassles involved in physical gold. Currently, there are 3 companies in India offering digital gold: Digital Gold India Pvt. Ltd; MMTC-PAMP India Pvt. Ltd; and Augmont Gold.

Features of Digital Gold

1. Low Investment: You can start your investment with as low as Rs.1.
2. Guaranteed Safety: Your purchase is safely entrusted with trusted custodians and located securely in vaulted premises that are insured.
3. Quality Assurance: You are assured of investing in only 24-karat items. The physical gold purchased by the digital platform on your behalf passes through various quality parameters before it is stored in the vault of the custodian.
4. Real-Time Price Updates: The platform through which you invest in digital gold shows the prices of gold in real-time. This allows you to observe the change in gold price on your portfolio.
5. Taxation: On purchase of the digital gold, you will have to pay a GST of 3%. If you hold it for less than 36 months, short-term capital gains tax will be applicable and you will be taxed as per your income tax slab. If you hold it for 36 months or more, you will have to pay a tax of 20% on your gains, along with an additional cess of 4%. Also, a surcharge will be levied if applicable.

Also read: Sovereign Gold Bonds

Advantages

1. No Making Charges: When purchasing physical gold, you have to pay some making charges above the price of Gold which may vary from dealer to dealer. Digital gold does not involve any making charges and ensures that you are paying only for the gold, thereby reducing the overall purchase cost.
2. Collateral Option: You can easily obtain a loan online in a matter of minutes by pledging the digital gold as collateral.
3. Liquidity: You can sell your digital gold anytime at the current market prices without incurring any extra fees or costs. The amount will be transferred to your registered bank account in a short time after placing the order.
4. Safe Investment: Gold Prices are comparatively less volatile than stocks, which ensures stable returns for investors in the long term.
5. Physical Delivery: You can redeem your digital gold by opting for the physical delivery of the gold.
6. Hedging against Inflation and Stock Market: Gold is a precious metal that is known for offering returns to investors higher than the inflation rate in the long term. In addition, Gold is considered a defensive asset that is known to appreciate when the stock market falls. This reduces the risk of your overall portfolio in case of a market fall.

Disadvantages

1. Increase in Cost due to GST: You have to pay a Goods and Service Tax (GST) of 3% when purchasing digital gold. However, some other gold products such as Gold ETF and Sovereign Gold Bonds do not attract GST making them cost-effective.
2. Limited Investment Period: When investing in digital gold, there is a maximum holding period beyond which you have to either take physical delivery of the product or sell it back. This discourages investors who want to invest in gold for the long run and require flexibility in investment duration.
3. Charges on Physical Delivery: When you opt to redeem your digital gold through physical delivery, you will have to pay certain delivery and making charges.
4. Absence of Regulator: On purchase of digital gold, a trustee is appointed to verify if the quantity and purity of gold match with the gold purchased by you. However, there is no authority to overlook if the trustee is performing the tasks responsibly and ethically. Statutory audits are carried out at regular intervals but the auditors are appointed by the gold provider and even the reports are submitted to them.
5. Better Investment Alternatives: When purchasing gold for investment purposes, Gold ETF and Sovereign gold bonds are better alternatives. Gold ETFs allow you to save on GST Costs while offering flexibility in investment duration. Similarly, Sovereign Gold Bonds offer you a fixed 2.5% interest along with zero capital gains tax if you hold them for 5 years.

Gold ETFs – An alternate way to invest in Gold

How to invest in Digital Gold?

Investing in digital gold is a very easy process. You can visit the digital platforms of companies offering digital gold and enter the amount you wish to buy in INR or grams. Some of the online platforms offering digital gold facilities in India are Groww, GPay, PayTM, PhonePe, and other companies. Upon completion of the transaction, the digital gold will be credited immediately to your account with the partner company.

Once you purchase digital gold, the opposite party purchases an equivalent amount of physical gold and stores it under your name with trusted custodians in secured premises. In addition, gold is insured to protect the interest of investors.

Who should invest in Digital Gold?

Digital Gold is a good option for individuals looking to diversify their portfolios and hedge against a stock market fall. This will protect your portfolio in volatile market situations and provide you with stable returns in the long run. When purchasing gold for investment purposes, Digital gold is better than physical gold as it helps to save on additional making charges and offers better liquidity.