The Rise of Digital Gold: All you need to know about investing in DIGITAL GOLD
World’s largest Gold Importer India’s love for Gold is not new but has been with us for centuries. In India, Gold holds more value than just another form of investment. For most, it not only is an investment but is an emotion.
Every Indian festival is incomplete without Gold, giving gold an auspicious value.
Historically, Indians have invested in gold through Coins, Bullion, Jewelry, Sovereign Gold Bonds, Gold Mutual Funds, and Gold ETFs. Previously, people in India preferred FDs (Fixed Deposits) as a form of trusted investment, but due to rising inflation, everyone needs to find newer and more rewarding investment options other than Fixed Deposits.
Today, People are becoming more accustomed to investing their money in numerous platforms such as stock markets, properties, and gold.
Gold's value has skyrocketed in recent years, making it an increasingly appealing option for storage and compounding. Gold prices have risen by more than 50% in the last three years!
When it comes to inflation protection, gold is a popular choice among investors. During stock market falls, gold is known to perform well.
Indians are so fascinated by gold that even a global pandemic wasn't able to keep them away from it. In the midst of the pandemic, a new technique of investing in gold known as Digital Gold is gaining immense popularity.
Digital Gold refers to a virtual investment instrument that offers far more ease and flexibility than buying gold in its physical form.
People have long been wary of buying gold because of its illegitimacy. There are concerns with determining its legality and purity, as well as issues with storage and safekeeping. An additional concern is that we're in the midst of an epidemic and going to gold dealers or jewelry stores is not a good idea. Also, keeping real gold held for a long time has some drawbacks such as accidental loss, theft, decreased resale value owing to making costs imposed on at the time of purchase, and storage cost, if you elect for a bank locker to store it.
Digital gold, on the other hand, can be purchased online and stored in insured vaults on behalf of the consumer by the vendor. It also aids us in overcoming all of the problems associated with physical gold purchasing.
In the last ten years, gold prices have increased by about 300 percent. By investing in digital gold, investors can easily resell their gold holdings at current market value without incurring any additional expenses. Through Instant Bank Transfer, funds can be easily transferred to the registered bank account.
Because many people are apprehensive to visit jewelry stores or gold dealers, the ability to buy gold online has proven to be a viable option for many investors.
Due to the metal's scarcity, gold has evolved into an excellent hedge against volatile markets over time.
In India, there are currently three companies that provide digital gold.
1. Augmont Gold Ltd.
2. MMTC-PAMP India Pvt. Ltd.
3. SafeGold by Digital Gold India Pvt. Ltd.
Several apps and websites also provide a platform for making the investment. When you invest in digital gold, these trading companies buy an equivalent amount of physical gold and store it in secure vaults in your name.
Investing in Digital Gold provides investors with several advantages that go beyond the advantages of purchasing physical gold in a store.
PROS of investing in Digital Gold.
1. You can begin investing with as little as Rs. 1.
You can invest small amounts of money in a high-return asset like gold over time, allowing you to build a stable investment portfolio and secure your financial future. The wholesale market rate determines the price of digital gold, not local factors such as geography or even a global pandemic, making it more affordable for buyers.
2. Protect yourself from volatile markets.
Gold investments have long been touted as a resilient and stable option, with a favorable place in portfolios spanning generations. While the manner in which invested gold is held is changing, gold investment as a whole is unlikely to go out of style, particularly for those looking to include it in their long-term wealth-building portfolio. With the stock market volatility and digitization making the process convenient, secure, and safe, the pandemic has shifted the focus back to gold investments.
3. Get delivery right to your door.
At any time, you can exchange your digital gold for physical units. In this time of the pandemic, when it is difficult to leave the house, all one needs to do is select from their large collection of highest purity gold bars and coins in a variety of weights, which will be safely delivered to your home. It is extremely simple to convert digital gold to physical gold.
4. Redeem at your leisure.
Storing gold in the form of jewelry raises costs not only in terms of manufacturing but also in terms of storage. You have the option of having the gold redeemed only when absolutely necessary. You can purchase Digital Gold at the current gold price and sell it whenever the price of gold rises.
5. Assured Safety and Purity.
The digital gold you buy is certified 24K gold with a purity of 99.9%. Each unit of digital gold is backed by 24K 99.9% pure gold in physical form with the portal, ensuring the security of your investment at all times. You also get free access to a vault for five years, after which you can redeem or sell the gold.
6. Easy Liquidity.
While gold is preferred as a commodity due to its high liquidity, digital gold is far more liquid. You can purchase and sell it at market rates and get cash quickly in case of any financial emergency. Digital gold is extremely liquid; it can be converted to cash in a matter of seconds and at any time.
7. Free storage and security
Considering keeping a big quantity of gold safe will always be a problem, buying digital gold online allows you to pass the security risk to the seller. Your gold is safely stored in insured and secure vaults, and your transaction is completely transparent.
8. Live and at a Fair Price.
Digital Gold's pricing is determined by live international markets and is unaffected by local circumstances. So, regardless of market conditions, you'll get a fair return on your investment if and when you decide to sell. You can withdraw your funds via a simple bank transfer at live market values that are consistent across the country.
These were the PROS of Digital Gold. Now let’s understand the drawbacks of investing in Digital Gold.
CONS of Digital Gold.
Order Limit: On most sites, there is a limit of Rs.2 lakhs for investment.
Unregulated: The absence of a government-run regulatory authority such as the RBI or SEBI makes it unstable.
GST: When purchasing gold, a 3% GST is applied. This is because when you possess Digital gold, you truly own physical gold that the Digital gold seller stores safely for you.
Hidden Charges: When purchasing gold, an additional spread fee of roughly 2-3 percent must be paid (which includes handling charges, transaction charges, and storage charges). These fees are only applied when purchasing gold, not when selling it. The price of gold is then increased by delivery and making expenses.
Limited storage time: Companies may only provide a limited storage term, after which you must either take physical delivery or sell the gold. Most businesses also require their investors to sign long-term agreements or bonds. The investor must sell digital gold at least once or convert it to physical gold when the designated time period has passed. If the account is not activated, the corporation has the power to deactivate it, leading to sabotage of the gold investment.
Taxes on Profit:
There are two types of taxes to be paid:
Short-term capital gain:
If online gold is sold before three years, for example, it will be regarded as a short-term capital gain, and tax will be paid according to the current income tax bracket.
Long-term capital gain:
If you sell digital gold after three years, for example, it will be deemed a long-term capital gain, and you will have to pay 20% tax plus 4% CESS with indexation.
Gold, as an investment class, should undoubtedly account for a small portion of our portfolios. However, there are better ways to invest in gold than Digital gold, such as Sovereign Gold Bonds and Gold ETFs.
The primary point is that gold should be included in a long-term investment portfolio. In this regard, gold bonds are preferable because they pay an additional 2.5 percent in interest. However, because bonds are less liquid, Gold ETFs are a better option for short-term hedges because they are regulated by SEBI.
In recent months, gold prices have steadily risen. Following the March crash caused by the COVID-19 lockdown, they managed to break through the Rs 50,000/10gm mark in July 2020, and are now on the rise once more.
As the markets are currently unpredictable and volatile, digital gold is a safe investment and a good way to protect yourself from an unstable market.