Investing in digital gold? All you need to know

by Madhusudan Ekambaram, Chief Executive Officer (CEO) at KreditBee

People have been investing in gold for ages since it is often considered a safer investment category than debt and equity. Lately, the demand for gold as an investment has increased significantly, and among the many options to invest in gold, digital gold is gaining popularity. As the name implies, digital gold is a product sold online that enables one to retain gold without needing a safe or bank locker virtually. The vendor maintains an equivalent weight of real gold for each online purchase in a secure vault. It is the purest 24-carat gold as it is sourced directly from the miners. 

Currently, three prominent firms provide digital gold in India through partnerships with different apps: Augmont Gold, Digital Gold India Pvt. Ltd. with its SafeGold brand, and MMTC-PAMP (a joint venture between MMTC Ltd, a Government of India Undertaking, and PAMP S.A. of Switzerland). These apps and platforms offering digital gold have given the product a reach that even some of the other highly recommended products, such as sovereign gold bonds and gold exchange-traded funds, may not have. Aside from the reach, this product is highly appealing compared to other options because investors can purchase gold through it for as low as Re 1 Unlike physical gold, one need not buy in multiples of 1 gm, and unlike gold sovereign bonds, it is very liquid. However, there are certain things that investors should keep in mind while investing in digital gold. 

Opt for a reliable platform: Investors should make sure they buy and sell gold from an authentic and reliable platform. Typically, a trustee is appointed to check if the gold’s quantity (bought in lieu of the investor’s purchase of digital gold) and purity align with the gold purchased by the investor. However, due to there being a gap between the investor and the regulator to monitor trustees’ performance, one should make sure they regularly keep a check right from the beginning. Even if independent audits are carried out, the process of selecting auditors and the responsibility of reviewing the audit reports lies with the gold suppliers. Thus, it’s absolutely essential to be mindful of the platform from which one is buying or selling digital gold.

GST payment: An investor must pay a 3 per cent Goods and Services Tax (GST) when purchasing digital gold for the expenses such as the cost of storage, insurance, and trustee fee, similar to when buying physical gold. For instance, if someone spends INR 5,000 on digital gold, they will only receive Rs 4,854 worth of gold because the rest will be subtracted as GST. 

Delivery and making charges: When purchasing digital gold, investors have the choice to exchange it for physical gold and have it delivered to their homes. However, they must pay the delivery fees as it’s not included in the gold's purchase value. Additionally, investors must pay the making charges when converting digital gold into physical gold items such as gold bars or coins. Therefore, remembering this is crucial, so the investor isn't caught off guard later.

Limitation on period of investment: Digital gold investments have a maximum holding period after which the investor has to either take the delivery of gold or sell it further. In some cases, these periods are about 5-7 years. Investors must pay extra charges for storage if the delivery is not taken on the due date. Therefore, one should choose the form in which they want to redeem their digital gold as they get closer to the due date.

To sum up, investors must keep in mind the aforementioned points regardless of the value of their digital gold holdings. This will assist them in making wise investment choices and ensuring that they are aware of the risks and challenges associated with buying digital gold.

(Disclaimer: The views/suggestions/advises expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)