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:
https://www.youtube.com/watch?v=kNnyBJw6sm4&t=2s&ab_channel=WealthCafeFinancial

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.

Gold Monetisation Scheme

Thought that the gold you own is only to wear in high-end weddings and is of no use to you. It is definitely considered as one of the best forms of Emergency Funds but beyond that what. How about we tell you that there is a way to earn interest in a safe way on your gold via Gold Monetisation Scheme. This scheme helps you to monetize the gold that you have and earn interest on the same.

The Gold Monetisation Scheme allows you to earn interest on the gold you own. It also saves the storage cost for gold. To gain benefit from the scheme, you need to deposit gold in any physical form, jewelry, coins or bars. This gold will then earn interest based on its weight. You get back your gold in the equivalent of 995 fineness gold or Indian rupees, as you desire (this option is to be exercised at the time of deposit).

Eligibility - Restricted for sale to resident Indian entities, including individuals, HUFs (Hindu
undivided families), trusts, universities, charitable institutions

Tenure - One to three years (short term); Five to seven years (medium-term); 12–15 years (Long term)

Interest: Both principal and interest to be paid to the depositors of gold are ‘valued’ in gold. For example, if a customer deposits 100 gm of gold and gets one percent interest, then, on maturity, he has a credit of 101 gm. The interest rate is decided by the banks concerned.

Minimum Deposit - 30 gram (any form bullion or jewelry)

Interest & Taxation - Interest paid in gold terms. Fully tax-exempt, no capital gains

Remember that since the gold that you deposit will be melted, you won’t get back the gold in the same form as you had deposited.

How to Open an Account - You need to first go to a collection and purity-testing center to ascertain the purity of your gold. You can deposit your gold if it clears the criterion set for gold content. You will be provided with a certificate of purity and gold content. You will need to present the certificate to the bank where you want to open the account.

Redemption - you can take back gold or cash at redemption but the preference must be stated at the time of deposit.

Wealth Cafe Actionable - In the scheme, you give your gold to the bank which is then melted so if its jewelry ensure that you won't get it back. Also, it is bank-specific so be sure to go to a good bank for this scheme to be sure of getting your returns and money/gold back.

Alternative Assets - 09/10/2019

Investing in Gold Online - Digital Gold

In today's time when we can do every other transaction online then why not invest in Gold. Almost all the wallets and payment portals let you invest in 1 gram 99.99% finesse gold.

What is Digital Gold:

Digital Gold is relatively new in the market. It is a simple way to buy and sell gold instantly. With physical gold one has to save enough, go to the store and buy the same. In physical gold, you either buy it as jewelry or coins. Digital Gold as the name suggests can be bought online in digital form online. The same is in your online account. You will have to sell the same to buy gold jewelry, coins or get cash in return.

How to buy Digital Gold

You can get digital gold via any of the following portals:

GooglePay
Paytm
Phone Pe
HDFC Securities
Motilal Oswal Securities
Stock Holding Corporations of India

Where is your Gold kept?

You gold is stored in vaults of MMTC-PAMP tagged in your name. MMTC - PAMP is a joint venture between Switzerland based bullion brand, PAMP SA, and MMTC Ltd, a Government of India Undertaking.

Features:

A customer using either of the two platforms can buy 24 Karat / 999 fineness gold.
Some of these portals allow you to buy gold with a minimum value of INR ONE.
You can buy & sell gold anytime even on public holidays and weekends.
There is a limit of tenure up to which you can invest in digital gold after that you can either convert it to jewelry or cash.
It is important to keep your account with these portals active - Paytm has a time period of 6 months. Without any transactions for 6 months your account is inactive.
Non-cancellation - Once you have placed a transaction (buy or sell) on these platforms, you cannot cancel the same.

What to do with digital gold

You can use your digital gold to buy gold jewelry with partner jewelers of the portals you are using to buy digital gold, sell and get cash on prevailing rates or get gold coins in return.

However, the price at which a customer can sell the digital gold back to Paytm is slightly less than the price at which he can buy the gold, says Hegde. This is due to various transaction-related costs including taxes, bank charges for processing your payment, technology costs and hedging costs since the market prices may fluctuate between a customer placing an order and MMTC-PAMP buying the gold. Similar costs are involved while selling of gold by MMTC-PAMP, too, when a customer sells gold on the Paytm. The same must be rechecked with other portals as well.

It is important that you check the costs that you have to bear when you sell your digital gold for cash or the making charges for coins and any other charges that may be applicable.

Is digital gold safe?

There has been some debate around it being a safe investment option or what guarantee does an investor have? One of the biggest risks of investing in digital gold is that it is not regulated yet. All these platforms - Paytm, Phone Pe, Google pay and others act as a platform or payment portals to help you buy gold which is safely kept with MMTC PAMP, it is not with these portals. Hence, it is very important to know where and how you are investing because if tomorrow any of these portals, you as an investor should have a redressal system in place to go to or approach MMTC PAMP directly. There are some grey areas on this right now. The convenience of investing in gold through these portals comes at a cost and you must be aware of the same.

Wealth Cafe actionable - Digital gold is a very interesting new addition to the world of investing in gold and it allows you to invest in smaller proportions in gold. However, there are more regulated means of investing in gold where the risk is relatively less.

Alternative Assets - 09/04/2019

Sovereign Gold Bonds

Global gold prices have risen 20% in the last one year and are reaching a new high of approximately 39,000 INR.

Gold, typically, flourishes as a safe haven in times of uncertainty, where people are unsure of the movements in the Equity /Debt Markets. India is not immune to these conditions. “A number of global issues have surfaced such as the Iran conflict and trade wars, and gold serves as a store of value in such situations. With investor interest rising in the yellow metal, we tell you about some of the options available for investing.

Instead of going for physical gold investments, there are other ways of investing in gold like the Sovereign Gold Bonds, Golds Exchange Traded Funds (ETFs), Gold Monetisation Scheme, Indian Gold Coins, and Mutual Funds.

With the intent to provide gold-like returns, along with some interest, the government has launched the Sovereign GoldBond Scheme. Sovereign Gold Bonds (SGBs) were
introduced in tranches. The first tranche was offered in November 2015. In the financial year 2019-20, four tranches of SGBs will be issued every month from June 2019 to September 2019.

Price of SGB - The price of the Gold Bond is linked to Gold Prices. If the gold prices go up, then your bond value will increase and if not, then another way around. Gold Bonds are issued in multiples of 1 gram of gold. You can hold these bonds in paper physical form. The risks and costs of storage are eliminated. The risks and costs of storage are eliminated.SGBs bonds are free from issues like making charges and purity. These bonds are held in the Demat form, eliminating the risk of loss of scrip.

Interest Payments - Given that these are bonds i.e paper form of gold investments, an interest of 2.5% is paid semi-annually on the initial amount of investment. This Interest is taxable.

Eligibility - Restricted for sale to resident Indian entities, including individuals, HUFs (Hindu undivided families), trusts, universities, charitable institutions.

Investment Amount - Investors are required to buy a minimum of one gm of gold. The maximum limit that can be subscribed is four KG of gold for an individual in a financial year.

Tenure - The bond is of eight-year with an option to exit after the fifth year onwards. However, gold bonds can be transferred to the stock market.

Taxation - Capital gain tax arising on the redemption of SGB to an individual has been exempted. The indexation benefit will be provided to LTCG arising to any person on the transfer of bonds.

Where & How to Buy - Gold bonds can be bought through banks, post offices and the Stock Holding Corporation of India. They are available both in Demat and paper forms. Know-your-customer (KYC) norms are the same as those for the purchase of physical gold.

The main objective of the Sovereign Gold Bond Scheme is to reduce the demand for gold in the physical form by encouraging people to buy it in the paper form. The rate of interest for 2019–20 is fixed at 2.50 percent per year, payable on a halfyearly basis.

Wealth Cafe Actionable - Gold Bonds are a great form of Investments for individuals who want to make long term 'Investment' in gold for a period of more than 5 years and do not want to go through the hassle of purity, safety, and other risks.

Alternative Assets - 09/04/2019