In India Gold is not only considered as an investment but also a symbol of prosperity.

If you ask your parents that what is the best investment they would love to make, their answer would be “Beta Gold Lelo (son, just buy some gold) ”

This is the level of love and attachment Indians have towards Gold.

If you still doubt this fact, then ask your parents to sell some gold and buy stocks, and you will get your answer ;) Just Joking, don’t attempt these stunts at home.

So, now we have various ways to invest in Gold, and today we will be talking about one of those ways in detail, which is Digital gold.

What is it?

Its Pros and cons.

How to invest in it.

And much more.

So, let’s dive deep into it, shall we?

Digital Gold

Digital Gold is the Online or Virtual version of the Gold, just like the money you hold in your digital wallets.

The Added benefit of buying digital gold over Physical gold is that You don’t have to worry about the hassle of storing it, as the Seller keeps an equivalent weight of Physical gold in a secure vault for each online buy.

How to buy digital Gold?

Just, 1 month before you could have bought the Digital gold from any broker or Digital wallet.

But recently SEBI issued a letter stating that Buying and selling Digital Gold on the platform of a stockbroker is against the Securities Act Rule, 1959.

After which, NSE had directed its members to stop selling digital gold on its platforms from Sept 10.

So, from here on you will only be able to buy Digital Gold only through Digital wallets (service providers) like

1. Paytm

2. Google Pay

3. Phone pe

The companies which are actually refining, selling, and storing the Gold in India are:

1. Augmont Goldtech.

2. MMTC-PAMP India, It’s a joint venture between MMTC India and Swiss company MKS PAMP.

3. Digital Gold India.

Advantages of Digital Gold

1. Storage

While Most people love the feel of actually holding Gold in their hands ;) but then you have to deal with problems like the risk of theft, storage issues, etc.

But, it's not the case while investing in Digital gold, Here you don’t have to worry about theft, purity, or storage issues, as the company stores the 24 karats pure Gold in a secured and insured vault at no extra cost.

2. No Minimum Investment

While buying physical gold, you might not be able to invest below a certain amount.

But, there are no such minimum investment criteria in case you invest in Digital gold, you can invest as low as Rs 1.

3. Invest In Few Clicks

It literally takes a few seconds to invest in digital gold, the same is the case while selling it.

You can purchase it from the apps you normally use for payments, like Paytm, Phone Pe, Google pay.

4. Quality

When you buy physical gold, there is always a doubt whether it is pure or not?

But with Digital Gold you will get 99.9% pure 24 karat gold.

5. Loan

Digital Gold can also be used as collateral for taking Instant online Loans.

6. Real-Time pricing

If you look at physical gold, the rates vary from store to store.

But, the Price of digital Gold is linked to real-time market prices, So you will get the same rates across the country.

7. No making charges

If you buy physical gold, you might have to bear 20-25% Making charges.

Whereas if you buy digital gold, you only have to pay 3% GST.

Disadvantages of Digital Gold

1. No official Regulating Body

One of the major disadvantages of investing in Digital gold is that it’s not regulated by SEBI or NSE or any other authority.

So, you really don’t know if the merchant that’s selling you the digital gold, is actually maintaining the same in the physical gold or not.

2. You can’t Hold it Forever

Most companies also make their investors sign agreements or bonds of a certain time period.

After the predetermined time period (Usually 5-7 years), You have to take the physical delivery of the Gold.

3. Huge Spread Cost

There is one more cost involved in buying the digital gold, which is the 3-6% spread (which includes handling charges, transaction charges, storage charges).

Spread is the difference between buying and selling (Bid and Ask) between investors.

The price of buying Digital Gold is approximately 3-6% higher than the selling price offered by platforms that sell Digital Gold.

For example, If you buy 1g Gold at say 5000, your Holding price will be 3-6% higher, i.e 5015 to 5030.

So, as we have discussed the pros and cons of investing in Digital gold, now let’s see how it fares with other ways of investing in Gold.

Alternative ways to invest in Gold

1. Gold ETF

Gold ETF (Exchange-traded Fund) is a commodity-based Mutual Fund that Invests your money into Gold, Gold refining, and mining companies.

These ETFs are listed and traded on NSE as well as BSE, You can trade these ETFs Just like you would trade stocks.

These ETFs are backed by the price of actual physical gold, where 1 ETF equals 1 Gram Gold.

You can Buy Gold ETFs through your stockbroker.

The advantage of buying Gold ETFs is that you don’t have to pay any GST or make charges like you would have to give in the case of Physical or Digital gold.

But, yes you have to pay about 0.5-1% expense ratio (Fund management expense).

Also, You can’t take out a loan against gold ETFs.

2. Gold Mutual funds

Basically, this is a mutual fund that invests in various Gold ETFs, so you can call it a Fund of Funds.

The advantage of Gold mutual funds is that you can invest in them via SIP, which is not the case in Gold ETFs.

The expense ratio will be higher in the case of Gold mutual funds, ranging between 1-2%.

Because you will have to pay the expense ratio for the mutual funds which is about 0.1-0.2% and as you are indirectly investing into ETFs, you will have to pay 0.5%-1% for that too.

You will need a mutual Fund app for investing in these Gold Mutual Funds.

3. Sovereign Gold Bonds

Sovereign Gold Bonds are issued by the Reserve Bank of India on behalf of the Government of India.

A bond is basically a loan that is given to a company or Government by investors.

The Government or company issues these Bonds (i.e Put them on sale) and investors buy them, providing a loan to the Govt. or company.

In this case, the RBI is borrowing money from investors on behalf of the government.

Then Entity that borrows the money has to pay interest on the loan, same is the case with SGBs, the RBI will be paying you 2.5% interest Per annum.

The price of SGBs is directly linked with Gold price, You are basically holding Gold in Paper or E-format.

1 SGB = 1 gram of Gold

The advantage of investing in SGBs is that you don’t have to pay any expense ratio, Storage cost, GST, making charges, etc, that you would have to pay with any other way of investing in Gold.

The Maturity period of these bonds is 8 years, but you can also choose to exit the bond from the fifth year.

Also, if you exit at the time of maturity, your returns will be tax-free.

Though if you sell it in the Secondary market, you will have to give the Taxes, whether STCG (if you sell it before 3 years) and LTCG (if you sell it after 3 years).

You also have an option of getting these SGBs in your Demat account as well as the paper form.

These Bonds Released by the RBI periodically, usually at intervals of 1-2 months and the buying window is open for 5 days at a time.

Is Gold Even a Good Investment?

Sensex has given a return of about 16% CAGR since 1980.

Gold (In INR) on the other hand has only given 8.8% CAGR returns since 1980.

Which is significantly low compared to Sensex.

So, from the returns point of view Equities have beaten gold, by a big margin.

According to Warren Buffet:

Basically, whenever People are afraid, they try to move their money from Risky assets like Equities to Less risky assets like Gold.

So, Gold is more of a Money parking instrument, rather than an investment.

Neither it produces anything, nor does it give you dividend income.

Though we can consider it as a hedging instrument, against Rising inflation, or big equity market crashes like last year.

So, Few investors recommend having 5-10% Gold in a portfolio, just for the sake of diversification/hedging.

This was one way of looking towards gold, but in India, things are different, People love their gold as much as they love their home.

We use it in marriages, as a gift, and during various other occasions.

So it has made a special place in people's lives, so now you have to see whether you want to look at it as an investment instrument, an instrument of safety, an instrument of parking your money, etc.

Final Thoughts

We have discussed various ways of investing in gold, now comes the question: which one is better?

See, though the underlying asset is gold, the returns would be similar, but one thing that decides the return, in this case, are the costs, i,e making charges, expense ratio, storage charges.

So looking at these numbers we can say that:

If you are looking to invest in gold from a long-term perspective, 5+ years, then SGB’s look like a good option to go with.

Because you won’t have to give any expenses, plus you will get 2.5% interest every year. So this is the higher return option.

But, If you are more of a short-term investor (Less than 5 years), then Gold ETF is the preferred option.

So, that’s it for today from our side. If you learned something from this article then do share it with your friends over social media.

Thanks for reading.