Digital Gold: Have you pocketed everything you need to know?

Hello fellow investors

Digital Gold is considered as one of the best and most convenient ways to invest in gold for us gold love-stuck Indians. In the past one year, every other payment app like Paytm, Google Pay and now even Amazon Pay has joined the players who offer Digital Gold. Even many stockbrokers have joined the offering to cater to the Indians' love for Gold.

The increasing gold prices and higher returns in the past 1 year have only further affirmed this love. Is this digital gold all that glittery for real?  Have you looked at the fees, cost structure, and the regulations behind buying digital gold? Read this article to understand the various nuances of digital gold and things to consider before buying digital gold (only for convenience)

Digital Gold – Have you pocketed everything you need to know?

The entire mantra of Digital India has been pushed to gold as well and now an investor can purchase gold using payment apps like Paytm, Phone Pe, Google Pay, Amazon Pay, etc.

As investors, it is important to be aware of how Digital Gold functions; where is the money eventually going, and how cost-effective this investment is. Here we will break down these concepts for you and help you have a well-informed discussion about digital gold and it will offer you insights if you should go for it or not.

What is Digital Gold?

Digital Gold is a way to invest in physical gold ‘digitally’. It is offered by 3 main vendors in India – Augmont Gold; MMTC-PAMP India Pvt. Ltd (a joint venture between state-run MMTC Ltd and Swiss firm MKS PAMP) and Digital Gold India Pvt. Ltd with its Safe Gold brand. Various payment apps such as – Paytm (Safe Gold), Google Pay (MMTC-PAMP), Amazon Pay (Safe Gold), and investment platforms such as – Kuvera, Groww, and stockbrokers bring to you this digital gold in partnership with one of the three vendors. There are many new financial service providers who are adding digital gold to their bouquet of services.

So how does this work? When an investor buys gold via these apps, physical gold equivalent to that amount is kept safely in a vault under the security of the vendors. The investor can then choose to sell the gold at any time using the same app or convert it into gold coins (after reaching a certain limit).

Digital gold enables an investor to buy, sell, and accumulate pure gold of finesse 99.99 (24K gold) infractions anytime, anywhere. Thus, even with a minuscule monetary investment of INR 1, an investor can buy gold (even if it’s a minuscule quantity of it) at their convenience regardless of the time and place. What’s more, is that one can do so without worrying about the purity of gold.

Is this product really all gold?

To dig deeper into the digital gold framework and its working, we checked the buying & selling prices on various apps and compared the same to MCX gold prices.

MCX Price on 18 September was INR 51,210

As you can see from the table above, there is a clear difference between the buy and sell price of digital gold. Also, the prices on these apps are much higher than the MCX price for gold.

The gold price is higher on the platforms as they charge convenience fees, gold handling charges, trustee fees, storage charges which are all included in the gold price but there is no breakup of these charges mentioned anywhere. Additionally, a GST of 3% is also payable on the gold price.

Meanwhile, the selling price is substantially lower than the buying price and on top of it, some platforms also charge a convenience fee when you sell the gold.

Making & delivery charges – An investor can take physical delivery of gold in the form of gold coins and jewellery (Paytm has tie-ups with Kalyan Jewellers). While converting to coins, making charges and delivery charges are payable. On the Paytm app, the minimum quantity of 0.5 grams of gold is required to convert to gold coins and the charges vary from 384 for 1 gram gold coin to 944 for 10 gram gold coin (these charges and specifications varies across each app)

Apart from the additional cost, the risk of investing in digital gold is that there is no regulator for the product. When digital gold is bought, the vendor purchases gold of an equivalent amount in the investor's name. Generally, a trustee is appointed to see if the quantity and purity of gold is maintained in line with the gold purchased by the investor. However, currently, there is no regulator to oversee if the trustee is doing the work properly. This is a point of concern because even the apps which help one to buy digital gold are only a medium to buy it. Ultimately gold is stored with the vendors.

In light of the lack of regulatory framework coupled with the high cost of digital gold, other investment options of gold such as sovereign gold bonds & Gold ETF appear more viable when investing larger amounts of money and for longer periods.

On the other hand, digital gold helps us, gold love-struck Indians, to accumulate gold in smaller quantities as investing in large amounts may be out of bounds for a large section of the population. And this can be seen in the high volume of transactions seen by platforms like Paytm in a short span of time.

If you want to know more about the basics of Digital Gold, do check out our video on the same through the following link:


Disclaimer: - The articles are for information purposes only. Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. You must consult a financial advisor who understands your specific circumstances and situation before taking an investment decision.


Ways to Invest in Gold

Hello fellow investors,

We Indians love our gold.

And it also works as a good financial backing. In fact, it is the fallback asset in India to tide over financial emergencies. In the calendar year 2020, gold has given an exceptional return of over 41%, the highest returns generated in the last decade. While that is attractive, gold has given an average return of 9% per annum for the last 30 years. 

Gold is on everyone's mind so we thought let us highlight the ways in which you can invest in gold. Though in no way are we recommending you go and buy it without checking if it fits in your portfolio. 

Gold can be owned as physical gold and as paper gold.

You can buy it physically in the form of jewelry, coins, and gold bars. Gold can be owned digitally through Gold ETF, Gold Mutual Funds, Sovereign Gold Bonds (SGBs), and as Digital Gold through wallets. We have discussed each of them in detail here.

Physical Gold

1. Buying Jewelry: For buying jewelry you reach out to your neighborhood jeweler or your family jeweler uncle or can buy it online today. Such jewelry generally forms a part of your personal assets against your investment assets.

As an investment, there are some concerns with gold jewelry like safety, purity, and its high cost (such as making charges). Jewelry making charges range from 6% to 10% of the cost of the gold and are a cost for you the day you purchase jewelry and hence not a preferred mode of investment.

To ensure its authenticity, you must check The Bureau of Indian Standards (BIS) hallmark, the Jewelers' identification mark, and the purity of gold stamp on the jewelry that you are buying to ensure its authenticity.

2. Gold Savings Scheme - Given the high prices of gold, (₹ 55,000  per 10 grams for 24kt purity gold as of 5 August 2020), many jewelers run gold savings schemes to make it easy for buyers to buy gold by paying in installments. 

A typical gold scheme allows you to deposit a fixed amount every month for the chosen tenure. When the term ends, you can buy gold (from the same jeweler) at a value that is equivalent to the total money deposited, including a bonus amount added by the jeweler to incentivize the depositor.  In most cases, the jeweler adds a month's installment for every 11 installments deposited or may offer a gift item.

Please note that this scheme is useful only when you want to buy gold jewelry from the jeweler (say Tanishq or Kalya Jewelers or your local jeweler) whom you are depositing the installment each month. Don't forget that jewelry making charges would still be payable by you when you buy the jewelry.

3. Gold Coins: If still want to own physical gold and do not want to lose out on the making charges, then Gold Coins is a good option. You can buy them from jewelers, banks, non-banking finance companies, and even some e-commerce websites.

The government has launched ingeniously minted coins that will have the National Emblem of Ashok Chakra engraved on one side and Mahatma Gandhi on the other. The coins are available in denominations of 5 and 10 grams while the bars are for 20 grams. 

Paper Gold or Gold Securities

Physical gold has its advantages and most of us own gold like that. However, PAPER GOLD is the new seamless way of investing in gold. It is effortless to buy and does not carry the security risk and purity risk of physical gold. Let's look at options to invest in Paper Gold. 

1. Gold Exchange Traded Fund (ETF) - Gold ETF is the most cost-effective way of owning gold. The Gold ETF can be purchased via the stock exchange (NSE or BSE) which has gold as the underlying asset. Transparency in pricing is another advantage.

To Invest in ETFs you need to have a Trading and a Demat account which is the same one used for owning stocks.

 When choosing an ETF, compare the Fund Management charges and the Tracking Error of the ETF with other ETFs and choose the one with the lowest Fund Management charges (expenses for managing the ETF for you) and lowest Tracking error (deviation from gold prices). This ensures you get the return on your gold investment with the least deviation from the actual gold prices.

2. Gold Mutual Funds: If you don't have a Trading and Demat account, you can invest in Gold Mutual Funds which in turn invest the Gold ETFs discussed above. Just like Gold ETFs, choose the Gold Mutual Fund with the lowest Fund Management Expenses and Tracking Error.

While Gold Mutual Funds allow you to own gold without having a trading and demat account, you land up paying Fund Management charges twice, to the Mutual Fund as well as to the Gold ETF.

3. Digital Gold: You can buy gold online via mobile wallets such as Paytm, PhonePe, Google Pay and under the Gold Rush Plan of Stock Holding Corporation of India. All these gold buying options are offered either in association with MMTC-PAMP or SafeGold or both. 

This is a good option to invest in gold in smaller quantities of as little as INR 1 grams of gold. However, you can keep the gold with them for 5 years, after that you must either sell the gold or convert it into gold coins. To know more about digital gold, read here.

Be sure you understand the charges associated with liquidating the amount you accumulate when investing in gold via this option.

3. Sovereign Gold Bond -  If you don't mind a lock-in of 8 years for your investment, the best way to invest in gold is via the Sovereign Gold Bonds (SGBs) issued by the Government of India.  

The returns on gold via this mode are tax-free investments as no tax is levied on capital gains on the maturity of these Bonds. Further, you also earn a simple interest of 2.5% per annum on the gold bonds in addition to the increase in gold prices. If you are looking to invest your money in Gold for value appreciation and bringing a balance to your portfolio then SGB's are a good investment option. You can read more about it here.

SGBs are not available 'on-tap basis'. Instead, the government intermittently opens a window for the fresh sale of SGBs to investors. This could typically happen every 2-3 months and the window remains open for about a week. If you are looking to purchase SGBs anytime in between, you can buy them from the secondary market as the SGBs are listed on the Stock Exchange.   

You have quite a few options to buy Gold. Now, which option should you opt for would depend upon the need of buying gold? If you want to buy gold to wear as a jewelry or gift for wedding functions then physical gold is the way to go for. However, if you are looking to invest in Gold then depending on the time period you have in hand - for short term needs (like 3 - 4 years), you can invest in Gold ETFs or Gold Mutual Funds, for long term needs (of 5 to 8 years), you can opt for SGBs.

Avoid going overboard with gold investments given the good returns of the recent past and stick to your Asset allocation.

Happy Investing!

Disclaimer: - The articles are for information purposes only. Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. You must consult a financial advisor who understands your specific circumstances and situation before taking an investment decision.

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