Gold, as an asset, has been in demand for decades. In India, every auspicious occasion is marked with the purchase of gold. Physical gold is used in every form such as jewellery, gold coins, or simply as gold biscuits. Over the last few years, the boom in the digital revolution has expanded to almost all of the markets-including the gold market. This has introduced a new form of investment – Digital gold. In this article, we take a look at what digital gold is and try to analyse which investment is better by knowing the difference between digital gold and physical gold.
Why do People Invest in Gold?
Before diving into the article, let us first learn why people invest in gold or in other words, why is gold considered a safe investment?
In ancient times, gold was used as a currency for investment. It was because of the long-term value that it holds. People used to barter goods in exchange for gold. Gold is also considered a safe haven for investors, as it has always maintained its purchasing power. The asset is also known to give good returns in the long term. Over the decades the price of gold has only increased.
There is a zero correlation between the price of gold and the price of stocks in the market. This means that any fluctuation in the price of stocks would not affect the price of gold. Investors often use gold as a hedging mechanism to curb the impact of rising inflation on their portfolios.
Benefits of Physical Gold
Generally, physical gold is directly purchased by the customer from a jeweller. This eliminates the involvement of any third party or intermediary. Hence, there is no counterparty risk.
Physical hold can also be pledged for getting loans easily. In addition to this, gold has no depreciation value, unlike any other physical asset. This makes it one of the most demanded assets out of all.
In India, creating a legacy for the future generation has always been a priority for the people. Physical gold is the best alternative for them. It can be easily passed on to the next generations.
What is Digital Gold?
An alternative to buying physical gold is- Digital gold. This is relatively a new concept in India. People are switching towards digital gold because of the benefits that it offers.
All you need apart from funds to invest in digital gold is a mobile and an Internet connection and you can invest in gold digitally anytime, anywhere. It is like buying traditional gold, but just with the click of a button.
Digital gold is an instrument that allows you to invest in pure gold in digital form. The seller stores an equivalent quantity of physical gold in secured vaults. After making the payment, the investor gets an invoice and the purchased quantity reflects under vault balance in their account with the service provider.
How Can You Invest in Digital Gold?
The concept of digital gold is new in India. Currently, an investor will have limited options of intermediary to invest through.
However, there are some websites and apps that can be used to buy digital gold. The companies which offer digital gold are Augmont Limited, a joint venture between state-owned Metals and Minerals Trading Corporation of India (MMTC), Produits Artistiques Métaux Précieux, Switzerland (PAMP) and SafeGold brand of Digital Gold India Pvt. Ltd.
These firms have tied up with service providers like PayTM, Google Pay, Amazon Pay and PhonePe, among others, to sell digital gold via their platforms. Lately, jewellers like Tanishq, Senco and Kalyan Jewellers have also started offering digital gold through similar tie-ups. The investor also has the option to open digital gold accounts with the refiner directly or through any of the partner platforms.
A digital gold account comes at no cost apart from 3% GST.
Benefits of Investing in Digital Gold
Let’s have a look at the benefits of investing in digital gold.
The investor can invest in small amounts. There are no restrictions on the minimum purchase limits. So if you are looking to make small investments, digital gold can be your option.
The digital gold assets are insured and securely deposited in a vault. As a result, the risk of robbery is eliminated. A trustee is appointed to oversee the quality and operation of vaults. The responsibility of the gold lies with the seller.
Investing in Digital gold can be efficient and cost-effective at the same time. As the transaction happens online, you don’t have to incur any additional storage and carrying costs.
Similar to its easy purchase procedure, digital gold can be easily redeemed as well. The redemptions can be in physical gold coins or bars. It is ideal for those investors who want the dual benefits of investing in gold as well as the option to easily take physical delivery.
As the investments are online, you can easily track your investments through online platforms (apps or websites). This enables you to easily assess your investment returns. Plus the investor gets the benefit of buying or selling the gold at a real-time price.
Checking the purity while purchasing gold is very essential. In the case of digital gold purchases, the investors will purchase 24 karat gold, and the quality is usually not compromised. This reduces the investor’s concern about the purity and quality of the gold.
Physical Gold Vs Digital Gold
|Physical Gold||Digital Gold|
|In case of physical gold, the purity may or may not be guaranteed.||In case of Digital Gold, the purity of the gold is guaranteed.|
|Generally, physical golds have fixed denominations such as Grams, Kgs, etc.||Digital gold can be purchased or sold by weight or fixed worth.|
|The minimum investment can be high as it follows fixed denominations.||An investor can purchase digital gold for as low as Rs 100. Therefore, the investment requirement is flexible|
|The price of Physical gold is not uniform across the country. It can differ from state to state.||The price of Digital gold remains uniform across the country.|
|There is a threat of theft or loss in case the physical gold is not stored safely. The burden of securing the gold lies with the investor.||The seller stores the digital gold in the investor’s name in a secure locker. Therefore, there is no chance of theft or loss.|
|An investor can easily buy physical gold from any bank or jeweller. However, they can be exchanged through a jeweller only.||An investor can redeem digital gold as coins and bullion or cash out the investment easily whenever they want.|
Both digital gold and physical gold have pros and cons. However, the choice of investment depends on the investor. The purpose of investment and the amount of investment are a few factors out of many that should be considered before making an investment in either type of gold.
It must be noted that digital gold is not yet regulated by any regulatory body such as RBI or SEBI. However, it is expected that the decision will be made soon.
Be it digital gold or physical gold, an investment portfolio with around 10%-20% of gold is considered healthy. Now you can choose the types of investment based on your preference. Happy Investing!