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.

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.