The stability and benefit of investing in Digital Gold

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By Mahendra Luniya

Gold has been a part of portfolios for long times. It has proven to be a hedge against inflation and has helped in difficult times. Now the world is witnessing a shift in the way investors invest in gold. The shift is towards digital gold, an easier and more transparent way of investing in gold. Digital gold products have mitigated many concerns related to gold such as purity, additional charges, storage burden and more. Let us discuss the two prominent types of digital products.


1) Sovereign gold bonds (SGBs): These are bonds each backed by one gram of pure gold. The RBI issues these on behalf of the government. This is one of the most popular products in digital gold as it offers 2.5% per annum interest.

2) Gold ETF:  These are mutual funds which invest in gold and are regulated by SEBI. This is one of the most pocket friendly way of owning gold as the ticket size to buy is one unit, the price of which is around Rs.50/-

Stability and benefits in digital options

1) SGBs: SGB is backed by the RBI making it one of the least risky investments and the 2.5% interest gives an  additional earning which makes it more attractive as earning interest is not possible in any other form of gold investing. This product even makes accumulation easy as one can easily buy units from RBI (when they are issued) or from the secondary market where they are tradable like any other listed security. The product adds stability to investing in digital gold as it is backed by RBI so there is negligible risk of default or purity of the gold. The product makes buying gold cheap. GST is not applicable on the SGB purchase so the investors save 3% of their money while buying.

These bonds also have discounts: – Yes, a discount on gold price! The bonds being a new product have low liquidity in the stock markets. Hence these bonds trade at a discount to the spot market price of gold. So, an investor who wants to buy and hold gold for the long term can consider buying SGBs from the stock market where it is witnessed that the discount ranges from 3-7% against the on-going market price of gold.

2) Gold ETFs: These mutual funds invest in pure gold. Investors can buy and sell these from the stock exchanges where these are listed. Gold ETFs give investors the option to invest in very small amounts. The price of each unit is currently around Rs.50/- allowing investors to allocate money to gold in an easier and  effective manner. These funds are regulated by SEBI and hence adding trust to the investment option.

These ETFs also do not attract the 3% GST on purchase. Although they attract an annual expense fee which can go up to maximum 1% per year. One should compare the expense ratios of different fund houses while buying Gold ETFs.

Benefit of digital gold compared to physical gold

1) Purity: There have been concerns related to purity of the gold being bought in the physical form for years, whereas in digital gold this concern is completely mitigated.

2) GST:  Investors are required to pay 3% GST while buying gold in physical form thus reducing the potential returns. That isn’t the case with digital products.

3) Making charges: Making charges are charged by jewelers on buying gold bullion or jewelry. They can range from 2-18% depending on the type of gold purchased. This money is saved in digital gold.

4) Storage:  Most of the investors in India buy gold bullion or jewelry and keep it in Bank lockers. These lockers attract annual rents. This yearly outflow of money is not required in digital options.

5) Interest:  The physical option requires yearly outflow of money, to keep gold secure whereas in products like SGB investors get a yearly inflow of Interest.

6) Price difference: While dealing in physical gold one must have noticed two different prices, one for selling and one for buying. While selling gold investors jewelers pay less to the investors as compared to what is prevailing in the market. This difference can range from 2-3%. This is not the case in digital gold where the buying and selling prices are the same.

Thus, to conclude, any person who wants to buy gold only from the perspective of investment should always think of digital gold so that they have most of the returns and enjoy the benefits it carries.

(Mahendra Luniya, Chairman, Vighnaharta Gold. Views expressed are the author’s own. Please consult your financial advisor before investing.)


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