An overview of digital gold investments, including gold mutual funds, gold ETFs, sovereign gold bonds, and gold futures. Benefits and risks are discussed, along with the availability of digital gold through authorised dealers.
Digital Gold Investments Overview
Investing in the digital version of a commodity can aid in creating a well-rounded investment portfolio. Digital gold investment allows for the gradual accumulation of the precious metal through small payments over a specific period, offering the flexibility of digital access from any location and at any time.
Gold Mutual Funds
Investors have the option to enhance their investment portfolios by acquiring shares in mutual funds that focus on gold. Some mutual funds concentrate on stocks of global gold mining companies and other assets connected to the gold market, such as gold ETFs. These funds closely monitor the price of gold, as the value of the assets they hold fluctuates.
Popular gold mutual funds in India include Invesco India Gold Fund, SBI Gold, Nippon India Gold Savings Fund, DSP World Gold Fund Quantum Gold Savings, IDBI Gold Fund, and Kotak Gold. These mutual funds impose an expense ratio, which covers the fund management fees, as well as charges associated with purchasing the underlying assets. Consequently, investors are subject to fees for owning gold mutual funds.
Gold Exchange Traded Funds (ETFs)
Exchange-traded funds (ETFs) have emerged as a convenient method for investing in gold. Gold ETFs are essentially funds that focus on investing in gold and can be bought and sold on stock exchanges, similar to common stocks. To begin trading in gold ETFs, investors are required to purchase a minimum of one unit, which is equivalent to one gram of gold.
Several popular gold ETFs in India include Axis Gold ETF, Birla Sun Life ETF, HDFC Gold Exchange Traded Fund, UTI Gold Exchange Traded Fund, Reliance Gold Exchange Traded Fund, and Religare Gold Exchange Traded Fund, among others.
Investors can also consider initiating a systematic investment plan (SIP) as a structured approach to investing in ETFs. Additionally, once the investor accumulates a substantial number of units, they also have the option to convert them into physical gold.
Buy Sovereign Gold Bonds (SGBs)
The Reserve Bank of India facilitates the availability of sovereign gold bonds issued by the Government of India. Despite not gaining widespread popularity among the Indian population, these bonds, introduced in 2015, are regarded as financially rewarding due to their consistent return on investment.
Investing in sovereign gold bonds offers two key benefits: potential price appreciation and an additional yield of 2.5%.
Solid Gold vs Digital Gold
| Gold Investing Vehicle | Advantages | Disadvantages |
| Solid Gold | Easy to trade. | Security is a constant worry. |
| Assets can be passed on to the next generation. | Additional costs for security and storage. | |
| Returns can only be realised upon sale. | ||
| Digital Gold | Easy to trade. | No government regulations currently. |
| Can be converted to physical gold (once a | Transaction fees for purchase, sale, and storage of gold units. | |
| a certain number of units are held). | Account activity required every six months. |
Gold Futures Contracts
Gold futures are contracts standardised for trading on organised exchanges, with the Multi Commodity Exchange (MCX) and NCDEX being popular exchanges for gold futures trading in India.
The mechanism of a gold futures contract involves the investor committing to buying or selling a specific quantity of gold at an agreed-upon price in the future.
Investors are obligated to fulfil these contracts either by purchasing or selling, with the expectation of making a profit or incurring a loss. The contract is settled on its expiry date, allowing the investor the freedom to buy, sell, or retain the contract until that time.
Gold futures are categorized as high-risk investments within the realm of gold investing and are more suitable for experienced investors.
Advantages and Disadvantages of Investing in Digital Gold
| Gold Investing Vehicle | Advantages | Disadvantages |
| Gold ETFs | Offers excellent liquidity for short-term and medium-term investors. | Incurs additional costs from asset management fees. |
| Exempt from wealth tax, sales tax, value-added tax, and securities transactions tax. | Cannot be converted into physical gold. | |
| Capital gains tax breaks applicable to other ETFs may not apply to gold ETFs. | ||
| Gold Mutual Funds | Well-understood and well-regulated security, providing a safe investment option. | Incurs annual fees in the form of expense ratios. |
| No need for a demat trading account. | Cannot be converted into physical gold. | |
| Gold Futures Contracts | Offers opportunities for short-selling. | Carries the risk of a total loss on trade. |
| No concerns regarding storage or security. | Exhibits high volatility. | |
| Cannot be converted into physical gold. | ||
| Sovereign Gold Bonds | Provides a fixed 2.5% annual interest rate. | May experience lower market interest due to lack of awareness regarding issue dates. |
| (SGBs) | Backed by the government, offering a low-risk investment option. | Exhibits low liquidity for trading in the secondary market. |
| Demonstrates minimal impact from market fluctuations. | Capital gains at maturity are tax-free. |
Benefits of Digital Gold
Purity:
Digital gold is exclusively traded in its highest purity form of 24 carats.
Safety:
The digital representation of gold is stored in a demat account, minimising the risk of theft.
Absence of Locker or Insurance Charges:
Storing gold in a demat account proves to be more cost-effective compared to physical gold storage, as it eliminates expenses such as locker charges and insurance costs for using a safe or vault.
Liquidity:
Digital gold offers the convenience of instant buying and selling, allowing transactions to be completed within seconds from anywhere with digital access to the commodity.
Preservation of Condition:
Digital gold remains secure in its digital format, avoiding any wear and tear typically associated with physical gold.
Government-Backed and Transparent:
Sovereign Gold Bonds, guaranteed by the government, provide a risk-free or minimally risky investment option.
Advantages Over Bonds:
Gold bonds offer additional benefits compared to other types of bonds, as investors can enjoy interest earnings along with the appreciation of the gold rate.
Risks Related to Digital Gold
There are risks associated with purchasing gold digitally. The regulatory framework for overseeing digital transactions of gold in India has yet to be clearly defined.
Until the government establishes necessary guidelines for regulating the buying and selling of gold in digital forms, it is crucial for investors to exercise caution by thoroughly evaluating the integrity, credibility, reputation, and business model of the digital gold provider in order to mitigate risks.
It is important to consider hidden charges before investing in this instrument. It is advisable to verify and assess all associated charges, as they can have a negative impact on the overall investment returns. Additionally, buying the digital form of the commodity is susceptible to cyber theft, which is inherent in any online transaction.
Where Can You Buy Digital Gold in India?
MMTC-PAMP India Private Limited, a prominent vendor facilitating the purchase of digital gold, has partnered with various fintech companies such as Paytm and PhonePe, as well as renowned banks like HDFC Bank and ICICI Bank, along with brokerage houses like Motilal Oswal and Angel Broking.
These intermediaries play a crucial role in assisting investors with the buying and selling of digital gold.
Another avenue for trading digital gold is through India’s securities provider, the Stock Holding Corporation of India. They offer a program called GoldRush, which allows investors to establish an online account where funds can be deposited to gradually accumulate gold, with a minimum investment threshold as low as INR 100. Customers have the flexibility to withdraw gold as per their convenience. You can get more Information With Vakilsearch Experts.
What Makes Investing in Digital Gold Attractive?
By investing in digital gold through authorised dealers, you acquire ownership of the highest form of pure metal, which is 99.9% 24K pure gold.
Vendors offering digital gold for sale have established partnerships with fintech companies, banks, and brokerage houses to facilitate the purchasing process.
Fintech companies provide the opportunity for investors to buy digital gold with an investment amount as low as INR 1 ($0.013). On the other hand, banks and brokerage houses allow you to invest in digital gold starting from the minimum denomination of INR 1,000 ($13.31), with the option to invest in multiples of INR 100 ($1.33).
The benefits associated with purchasing digital gold are as follows:
- Authorised Dealers: Digital gold providers facilitate the purchase of gold through electronic payments and securely store your gold in physical form in a protected vault. These providers can be payment wallets or scheduled commercial banks, which are regulated by the Reserve Bank of India (RBI).
- Vaulting Location of Gold: This involves acquiring digital gold from service providers who hold your gold on your behalf in overseas locations. When you buy gold in Indian rupees, the service provider simultaneously purchases it in overseas locations on your behalf in dollars.
- Stamp of Trust: Ideally, the seller of digital gold should have an independent SEBI-registered trustee who conducts monthly audits to confirm the gold holdings.
- Pricing: The pricing of digital gold may vary among providers, depending on the carat purity, which can be 995, 999, or 9999.
- Buy-Sell Price: Similar to purchasing gold at a jewellery store, buying digital gold involves displayed prices for buying and selling, typically indicated on boards.
- Fungibility and Delivery of Gold: Digital gold can be redeemed 24/7, and some providers may even offer the option to exchange it for jewellery at select stores. However, it is important to obtain information in advance about the minimum amount of gold required for delivery upon redeeming your investment and any associated conversion costs.
Frequently Asked Questions
How can I buy gold digitally?
When purchasing digital gold, you have the option to invest in various products such as Sovereign Gold Bonds (SGBs), Gold Exchange-Traded Funds (ETFs), and gold contracts and products offered by MCX.
Is it safe to buy gold online?
Investing in digital gold entails risks due to the absence of a regulatory framework to oversee digital transactions of gold in India. Therefore, it is crucial for investors to exercise due diligence by thoroughly evaluating the integrity, credibility, reputation, and business model of the digital gold provider to mitigate any potential risks.
Is buying digital gold a good investment?
Digital gold offers advantages in terms of purity, safety, and liquidity, while also eliminating concerns related to locker or insurance charges, as well as the wear and tear of physical gold. However, one drawback of digital gold is the absence of the emotional connection that a physical gold investment provides to the investor.
Is it safe to buy gold on Google Pay?
Buyers have the option to purchase and securely store gold digitally through Google Pay, with MMTC-PAMP ensuring the security of the gold. Other platforms such as PayTM, Google Pay, Amazon Pay, and PhonePe also provide similar services.
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