“Personal Finance” or “Financial Independence” are new-age terms. Yet, generations in India have passed down Physical Gold in their families, realizing the importance of this asset and its growth. We wonder if Gold’s hedge against inflation, or it being a solid collateral for loans was ever a reason for these families to fancy this asset. On average, Indian families allocate about 11% of their wealth to gold. However, something new has arisen that challenges this traditional avenue– Digital Gold. Improved internet coverage and smartphone adoption and services have made this alternate gold investment popular. Let us explore this in detail.
Digital gold is an online product which enables you to hold gold virtually without owning a safe or bank locker. The seller keeps an equivalent weight of physical gold in a secure vault for each online buy. Each unit of digital gold is backed by 24K 999.9 purity .
Digital gold, a decade-old model of investing (relatively new) compared to the centuries-old method of possessing physical gold, is gaining investor interest due to advances in digitalisation. Digital gold is considered a cost-effective method of gaining exposure to the yellow metal. The following players in the industry provide this backing:
One can invest in this instrument for as low as ₹100 (In some cases, even ₹1). This product is excellent for those looking to accumulate gold systematically. The beauty of this method is that you can buy fractional gold via a SIP route.
Gold is usually bought for consumption purposes. It is purchased in the form of jewellery, gold coins and biscuits. It can be bought directly from a jeweller or a bank with no involvement of an intermediary.
Digital Gold as an asset class is beneficial for the following reasons:
|Parameter||Physical Gold||Digital Gold|
|Price||Physical gold prices are not uniform across the country||Digital gold prices are uniform across the country|
|Cost||Buying gold jewelry involves paying 20% – 30% of the gold’s total value as making charges||3% GST is charged on digital gold purchases|
|Storage||One has to safely store the gold in a locker or at their home. Chances of theft and loss are high||The seller stores the digital gold in the investor’s name in a secure locker—no chance of theft or loss|
|Investment||Gold biscuits or coins are available in the standard denominations of 10 grams. Hence, it requires a huge investment to invest in physical gold||One can buy and sell gold by weight or by fixed worth|
Other forms of digital gold worth considering are Gold ETFs and Sovereign Gold Bonds (SGB), both of which require a Demat account. This is perfect for those who want their equity, debt and gold in a single place for more accessible tracking purposes. These will be discussed in the next section.
Today Indian households possess gold for much more than its socio-cultural and economic significance, and hence the bullish sentiment around the future of digital gold only seems to increase.
Nonetheless, The essence of investing in gold as a haven and a good asset remains the same in India, even as the ways to procure and hold it may change from generation to generation.
Gains from gold investments held for less than three years are taxable per the investor’s income tax slab rates. For an investment withholding period of more than three years, the gains are taxable at 20% with indexation benefit.
3% GST is charged on digital gold purchases by the intermediaries MMTC-PAMP or SafeGold.
SGBs have a term of eight years with a lock-in period of five years. The exit options for SGB are available in the 5th, 6th, and 7th years, and the option needs to be exercised on the interest payment dates.