- What is Digital Gold?
- Historical ways of investing in gold
- How digital gold investments work?
- How to invest in digital gold?
- Which companies provide digital gold investments?
- Benefits of investing in digital gold
- Disadvantages of investing in digital gold
- Who should invest in digital gold?
- Frequently Asked Questions
Gold is a go-to investment for everyone. Every auspicious occasion is marked with purchasing gold. Buying gold coins and biscuits were a common thing. However, they came with the risk of being stolen and additional costs and charges. In this era, digitalisation is the new globalisation. It is not surprising that gold can be purchased digitally too, hence eliminating the risk of theft and other storage costs. This article covers the historical ways of investing in gold. It also includes digital gold, its advantages, disadvantages, and how to invest in it.
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What is Digital Gold?
Digital gold is an investment alternative available to investors who prefer physical gold. It is the most efficient and cost-effective way of investing in gold. In India, Augmont Enterprises Private Limited, state-owned Metals and Minerals Trading Corporation of India (MMTC), Produits Artistiques Metaux Precieux, Switzerland (PAMP) and Digital Gold India Pvt. Ltd. with its SafeGold brand issues digital gold. MMTC and PAMP is a joint venture.
Every unit of digital gold purchased by an investor is backed by 99.9% 24K pure gold. Hence one need not worry about the purity of gold. Investments in digital gold start with an amount as low as INR 100. One can invest in digital gold from anywhere and any time of the day through online mode. Selling the units of digital gold also happens online at the market price of the gold.
Once an individual purchases gold online, the custodian safely places the gold in a secured vault. And it is sold, the exact quantity of gold is removed from the vault. Also, one need not worry about the purity of gold as the gold goes through numerous quality checks before it goes to the vault.
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Investing in gold online doesn’t involve any additional storage or carrying costs. Also, one need not worry about making charges in case of buying gold jewellery. The biggest advantage is one need not to worry about the safety of the gold purchased. Moreover, the transaction happens at market prices; hence there is complete transparency during trading.
Read also about the Digital Gold vs Physical Gold
Historical ways of investing in gold
Gold is among the most popular commodities. It has been part of the evolution of human culture from ancient to the modern world. There isn’t an era or culture where gold isn’t seen as a valuable asset. Gold was the foundation of the global economy as we know it today, serving as both a form of currency and wealth. Historically the most popular ways of investing in gold are by buying physical gold. Physical gold can be bought in any of the following forms:
- Gold coins
How digital gold investments work?
One can invest in digital gold from any of the e-wallet platforms like Google Pay, Paytm, and PhonePe. Investors can also invest in digital gold through HDFC securities, Bajajfinserv, and Motilal Oswal. All these websites and companies are only a platform for the trading companies MMTC-PAMP, SafeGold, and Augmont. These apps and websites are just intermediaries between the trading platforms and investors. Once an investor purchases gold on these platforms, the trading company places an equivalent amount of physical gold on the investor’s name in the vault. Hence all investors have to do is invest in gold on these platforms, and the rest is taken care of by the trading companies.
How to invest in digital gold?
Investing in digital gold is as simple as online shopping. The following steps will help you understand the process of investing in digital gold:
- Visit any of the platforms that offer digital gold investments. For example, G-Pay, Paytm, Amazon, HDFC securities, etc.
- Go to the ‘Gold Vault’ or ‘Gold Locker’ section.
- Enter the amount either in INR or grams. One can buy gold by weight or by fixed worth at the live market rate.
- Upon completing the KYC process, one can choose from the multiple payment options (internet banking, card or wallet) to buy the gold.
- The account gets updated instantly, and one can access it whenever one wishes to. The gold will be stored in a secured locker.
- Investors can take a physical delivery of digitalgold. They can request a doorstep delivery either in the form of coins or bullion. However, a delivery fee is applicable. Furthermore, one can also sell the gold digitally on the platform whenever they want to.
Which companies provide digital gold investments?
Only three companies offer gold online in India. However, multiple platforms facilitate the buying and selling of digital gold. The following there companies offer digital gold in India:
- Augmont Gold Ltd.
- MMTC-PAMP India Pvt. Ltd. It is a joint venture between a state-run organization – MMTC Ltd. and Swiss firm MKS PAMP.
- Digital Gold India Private Ltd with its ‘SafeGold Brand’.
Benefits of investing in digital gold
Following are the benefits:
- Invest small amounts: With digital gold, investors can invest small amounts. There is no restriction or minimum purchase value.
- Quality: Investors will own 24K pure gold only, and there would be no compromise on the quality. Therefore they need not worry about safety and purity.
- Redemption: One can easily redeem their digital gold investments. One can request for redemption in physical gold bars or coins. Furthermore, one can cash out their digital gold investments.
- Loan against digital gold: Investors can use their digital gold investments as collateral for loans.
- Safety: The digital gold investments are safely stored in a secured vault and are insured. Therefore, one doesn’t have to worry about theft or loss. The responsibility of digital gold lies with the seller.
- Track investments: One can easily track their investments through online platforms (apps or websites). One can easily assess their investment’s performance and gain better insights.
- Portfolio diversification: Digital gold is a good way to diversify an investment portfolio and is also a good hedging asset.
- Real time rates: The digital platforms offer gold online at real time gold rates. Therefore, the investor can take advantage of the price movements.
Disadvantages of investing in digital gold
- No passive income: Digital gold doesn’t provide passive income. In other words, one will earn a return only after selling their gold. There is no interest paid to investors.
- Limit on investment: The maximum amount of investment is limited to INR 2 lakhs on most platforms.
- Charges: The platforms that offer gold online charge 2%-3% as a management fee, storage costs and insurance. In case one wants to convert the digital gold to physical gold, then making charges is applicable, which is dependent on the quantity.
- Holding period: The trading companies have a maximum holding period, after which the investor has to sell the gold or convert it into physical gold. Different trading merchants impose different limitations. For example, MMTC-PAMP has a maximum holding period of 5 years.
- No regulatory authority: The biggest drawback of buying gold online is that there is no regulatory mechanism. These trading companies do not come under the regulation of SEBI and RBI, where the interest of consumers is protected.
Who should invest in digital gold?
An investor who has an affinity towards gold but cannot bear the high investment cost or storage costs can consider investing in digital gold. In other words, with digital gold, investors can invest small amounts. There is no restriction or minimum purchase value. Furthermore, investors need not worry about storing the gold, as it is safely kept at the seller’s vaults.
Buying and selling digital gold is completely online, and one doesn’t have to worry about physically holding the asset. The platforms offer digital gold at real time rates, and one doesn’t have to worry about price differences. Therefore, investors who prefer to make small investments in gold at the convenience of their home can invest in digital gold. Also, investors have the choice to either cash out their investment or redeem it as physical gold in the form of coins or bars.
Gold is an asset that carries a legacy, unlike other precious metals. It is more than a mere investment, as it holds high emotional and social value. Any auspicious occasion includes purchasing of gold. Investing in gold helps in financial diversification of an investment portfolio and helps in hedging inflation risk, currency risk, and market volatility.
Digitalgold eliminates the risk of theft and reduces the cost of investing in gold. One can invest in digital gold with an amount as low as INR 100. Moreover, one need not worry about the purity of gold and its resale value as the trading takes place in market prices. However, digitalgold comes with its own set of challenges. Any regulatory authority does not regulate digital gold. It also doesn’t provide any passive income until and unless it is sold.
However, if investing in gold is the only purpose of the investor, they can consider investing in gold mutual funds like Gold ETFs. There are Sovereign Gold Bonds available too. Gold bonds and Gold ETFs are other forms of digital gold where the transactions take place only in cash. These are a superior alternative to digitalgold as they are regulated by SEBI and RBI and also have lesser charges. Additionally, gold bonds pay interest on the investment, hence offering passive income.
Frequently Asked Questions
Digital gold is an alternative to buying physical gold. Investors can invest with an amount as low as INR 100 that is backed by 99.9% 24K pure gold. Hence the purity of the gold is assured. Investors are free to redeem their investment in terms of gold or in cash. The gold is kept safely in the vault is the responsibility of the seller. Hence the investor need not worry about the safety. Also, investors can get a loan against their digitalgold investments. Hence investors who are buying gold for future consumption or for pure investment purposes, can consider investing in digital gold.
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