What is Digital Gold?
Digital Gold, as the name signifies, is the way of buying and selling yellow metal online without holding it in physical form. In short, it is an alternative to purchasing gold in physical form.
It is a locker-stored, 24-carat pure gold which the investors can access through digital channels. Many licensed organizations allow customers to buy, sell and get delivery of digital gold at low ticket size, 24*7, with just one click.
On the purchase of digital gold by a customer, the concerned digital gold platform stores the underlying amount of physical gold in safe lockers.
Here, you should take note that the value for buying and selling is one rupee. Further, the customer has the choice of selling the whole or a fraction of the gold. They can sell the gold at the rates prevalent in the market, or they can take the delivery of the goods.
Table of Contents
- Interesting Facts
- Forms of Investing in Digital Gold
- Who sells Digital Gold?
- How to Buy Digital Gold?
- Is digital gold safe?
- Wrap Up
Need for Buying Digital Gold
Gold is the oldest trading commodity. We all are aware of the fact that buying gold in its physical form has several cons. The first and foremost one is that it is difficult to identify its purity. Next, there is always a risk concerning its safekeeping.
So, digital gold has no such limitations; it is purchased electronically. Also, it is stored in insured lockers by the seller on the buyer’s behalf.
Now you must be wondering – what about the purity of the gold?
Well, digital gold is 24 carats or, say, 99.5% pure. The buyer does not have to worry about its purity because it gets certification from government-licensed agencies.
- Do you guys know when it comes to the consumption of gold worldwide, India holds the first rank, followed by China and US
- Gold imported by India exceeds 800 tonnes every year, which is approximately 90% of its total supply.
Forms of Investing in Digital Gold
- Sovereign Gold Bonds or SGBs: These are offered by the apex banking authority of India, i.e. the Central Bank or Reserve Bank of India. It allows buying of gold in quantity, as small as 1 gram. Just like an IPO, RBI declares and opens SGB series for investors for a predefined time period.
- Gold Exchange Traded Funds: Gold ETFs are the same as equity mutual funds. Each unit is equivalent to one gram of gold. Further, the purity level is about 99.5 per cent. The storage of this gold is with the depositors.
- MCX Gold Contracts: It offers a method for trading in metals by way of recognized commodity exchange. The name of the commodity exchange is Multi Commodity Exchange or MCX. These are nothing but derivative futures and options contracts. Investors can hedge, speculate and trade in metal for the short term.
- Digital Gold Organizations: Digital payment systems like Google Pay, PhonePe or Paytm provide web platforms or mobile applications facilitating the purchase and sale of gold in digital form. The trade amount can be as low as ₹ 1. For the purpose of storing the underlying physical gold, depositories and insured locker facilities are maintained by the organizations like MMTC PAMP or Digital Gold India, etc.
Who sells Digital Gold?
At present, there are three licensed organizations which offer investment in digital gold, they are:
- MMTC PAMP India Pvt. Ltd.
- Augmont Goldteck Ltd.
- Digital Gold India Pvt. Ltd. (Safegold)
How to Buy Digital Gold?
- To invest in gold, there are some prerequisites, i.e. the investor must have a demat account linked to their PAN and their bank account.
- Before buying the digital gold, KYC formalities must be completed and verified. Customers can go for e-KYC and Video-KYC, that help in opening an account in a quick manner.
- After opening the account, the investors can buy the gold products either from:
- The recognized stock exchanges
- The Mutual fund for gold ETF
- The RBI-announced SGB series for SGBs.
- For selling the gold in digital form, the investor has two alternatives. the first one is selling in the secondary market. While the second alternative is holding the same till it matures and then redeems.
- The investor can also opt for different organizations that provide the opportunity to buy digital gold.
- Physical delivery of the gold.
- High liquidity, as it facilitates buying and selling anytime and anywhere.
- Used as security for online loans
- Safe storage with insurance.
- Exchange for physical gold as jewellery, coins or bullion.
- While physical gold is used in daily life, due to which it is subject to wear and tear. When the gold is in digital form, there is no such wear and tear.
- Government-backed and highly transparent.
- Cyber theft is one of the primary risks that is associated with online transactions.
- Investment limit of ₹ 2,00,000 on most platforms.
- No regulatory body like RBI or SEBI.
- Delivery charges and making charges may apply.
- Storage charges also apply to digital gold. Further, it can be stored for a term of 10 years, wherein the storage for the first five years is free, after which the storage charges apply.
- There is also a selling limitation, i.e. except when you have taken the physical delivery of the gold, you are allowed to sell digital gold to the platforms you have purchased it from.
- There is no relief from the GST too. This means the tax applies at the same rates as it applies to physical gold.
Is digital gold safe?
Digital gold is a very safe option. As you are not physically handling it, the security level is very high. Customers do not even have to worry about storage and theft.
With the emergence of digitalization, the world is accepting the practice of buying physical assets in digital form. Keeping aside its limitations, digital gold is a good investment option that not just offers flexibility but purity and insurance too.