The concept of investing in the digital form of a commodity can be helpful to build a diverse investment portfolio. Investing in digital gold involves a method by which an investment in the yellow metal can be made in small payments for a certain tenure, from anywhere and anytime with the convenience of digital access to the commodity.
Forbes Advisor India has put together all the available ways of investing in digital gold, which include buying:
Gold Exchange Traded Funds (ETFs)
Exchange traded funds have emerged as a very simple way to invest in gold. Gold ETFs are simply funds that invest in gold and can be bought and sold on stock exchanges, like common stock. Investors are required to purchase a minimum of one unit that is equivalent to one gram of gold to begin trading in gold ETFs.
Some of the popular gold ETFs in India include Axis Gold ETF, Birla Sun Life ETF, HDFC Gold Exchange Traded Fund, UTI Gold Exchange Traded Fund, Reliance Gold Exchange Traded Fund and Religare Gold Exchange Traded Fund among others.
Starting a systematic investment plan (SIP) is also a planned way to invest in ETFs. Once the investor holds a sizable number of units, conversion to physical gold is also possible.
Gold Mutual Funds
Investors can add gold to their portfolios by purchasing shares in mutual funds. Certain mutual funds base their holdings on stocks of international gold mining companies and other assets exposed to the gold market, like gold ETFs. These mutual funds track the price of gold as the assets they own rise and fall in value.
Invesco India Gold Fund, SBI Gold, Nippon India Gold Savings Fund, DSP World Gold Fund Quantum Gold Savings, IDBI Gold Fund and Kotak Gold count among popular gold mutual funds in India.
These mutual funds charge investors an expense ratio, a charge for managing the fund, as well as a charge of buying the underlying assets. That means you’ll be paying fees to own gold mutual funds.
Gold Futures Contracts
Gold futures are standardized contracts that trade on organized exchanges. In India, Multi Commodity Exchange or the MCX and NCDEX are popular exchanges for gold futures trading.
The way a gold futures contract works is that the investor makes a commitment to buy or sell a specific quantity of gold at an agreed price in the future. These gold futures contracts have to be honored by investors by either purchase or sale in anticipation of a profit or loss. In any case, the settlement of the contract happens at an expiry date and the investor is free to buy, sell or hold the contract till expiry.
Gold futures fall in the high-risk category of gold investing and are suitable for mature investors.
Buy Sovereign Gold Bonds (SGBs)
The Government of India offers sovereign gold bonds via the Reserve Bank of India. These bonds, which launched in 2015, aren’t the most popular among Indian masses yet. Though they are considered lucrative given their sustained return on investment.
A sovereign gold bond gives you two advantages: price appreciation plus a 2.5% yield.
Solid Gold vs Digital Gold
Advantages and Disadvantages of Investing in Digital Gold
What Makes Investing in Digital Gold Attractive?
When you invest in digital gold from authorized dealers, you take ownership of 99.9% 24K pure gold, which is the highest form of pure metal. Digital gold is sold by vendors who have partnered with fintech companies, banks and brokerage houses to enable digital gold purchases.
While fintech companies allow investors to buy digital gold for an investment amount as low as INR 1 ($0.013), banks and brokerage houses enable you to invest in the lowest possible denomination of INR 1,000 ($13.31) and further in multiples of INR 100 ($1.33).
The features of buying digital gold includes:
Authorized dealers: Digital gold providers help you purchase gold through electronic payments and they hold your gold in the physical form at a secured vault on your behalf. It could be a payment wallet or a scheduled commercial bank, entities regulated by the Reserve Bank of India (RBI).
Vaulting location of gold: It involves buying digital gold from service providers who hold your gold on your behalf in an overseas location. You buy gold in Indian rupees, the service provider simultaneously buys it in overseas locations on your behalf in dollars.
Stamp of trust: The seller of digital gold should ideally have an independent SEBI-registered trustee who audits and confirms the gold holding each month.
Pricing: The pricing varies among digital gold providers as it would depend whether the price is based on 995, 999 or 9999 carat purity.
Buy-Sell price: Buying digital gold is similar to buying gold in a jewelry store, wherein a price is often displayed on boards – a price to buy and another to sell.
Fungibility and delivery of the gold: Digital gold can be redeemed 24/7. Some providers also offer to exchange it for jewelry at a store. However, the information on the minimum grammage of delivery on redeeming your investment and the cost related to conversion are details should be made available to you in advance.
Benefits of Digital Gold
Purity
Digital gold is traded in 24-carat form only, the highest purity for the metal.
Safety
The digital form of gold is kept in a demat account making it less prone to any form of theft.
No locker or insurance charges
Storing gold in a demat account is also fairly cheaper than storing physical gold that invites locker charges as well as insurance cost for using a safe or a vault.
Liquidity
Digital gold can be bought and sold in a fraction of a second, anytime and anywhere with the convenience of digital access to the commodity.
No wear and tear
Digital gold is secure in a digital format and does not undergo any wear and tear.
Government-backed and transparent
The government offers a sovereign guarantee on Sovereign Gold Bonds and are risk-free or with minimum risk of a default.
Added benefit compared with bonds
Gold bonds have more benefits as compared to other bonds, wherein the interest along with the gold rate appreciation can be enjoyed.
Risks Related to Digital Gold
Buying gold digitally also carries risk. The regulatory framework to regulate digital transactions of the metal is not clearly defined in India as yet. Till the time the government frames necessary guidelines to regulate buying and selling of gold in digital forms, it is important for investors to carry out due diligence on the integrity, credibility, reputation, and business model of the digital gold provider to avoid any risk.
Hidden charges are another factor to consider before investing into the instrument. Cross-check any or all charges involved, else they will adversely affect the overall returns from the investment. Buying the digital form of the commodity is also prone to cyber thefts that come along with any online transaction.
Where Can You Buy Digital Gold in India?
Among the popular vendors assisting investors in buying digital gold is MMTC-PAMP India Private Limited, which counts fintech companies such as Paytm, PhonePe, and banks such as HDFC Bank and ICICI Bank, as well as brokerage houses like Motilal Oswal and Angel Broking among its intermediaries who assist the sale and purchase of digital gold.
Digital gold can also be traded via India’s securities provider, the Stock Holding Corporation of India, which helps investors purchase gold via a programme called GoldRush. GoldRush enables you to create an online account where funds can be added to to accumulate gold for as low as INR 100. Customers can withdraw gold at their convenience.
Frequently Asked Questions(FAQs)
Is it safe to buy gold online?
Buying gold digitally also carries risk due to lack of regulatory framework to regulate digital transactions of the metal in India. It is important for investors to carry out due diligence on the integrity, credibility, reputation, and business model of the digital gold provider to avoid any risk.
