We Indians love gold and are obsessed with it. We include gold in all our festivals as it is considered the most auspicious purchase. Moreover, it is our go-to investment if we have excess money. This is mainly because gold is a store of wealth and has given good returns in the long term. It also acts as an excellent hedge against inflation and is a good alternative for diversifying our investment portfolio. While physical gold still dominates purchases, several alternatives, such as gold ETFs, sovereign bonds, and digital gold, are gaining traction. Let's look at the different types of digital gold products and best ways to invest in digital gold online.
Different Types of Digital Gold Products
There are so many digital gold products available in the market that eliminate the hassle of storing gold physically. Moreover, there wouldn’t be any problem with purity as all digital gold products are backed by the highest purity of gold. The best part about purchasing digital gold is that you need not worry about theft as the purchase is stored in digital form. With this in mind, let’s look at the best way to invest in digital gold online.
Gold exchange-traded funds (ETFs)
Gold ETFs are mutual funds that invest in gold bullion. These funds track the price of physical gold and hence are one of the most popular digital gold alternatives. One unit of the gold ETF equals one gram of gold which is backed by physical gold of the highest purity. So, when you buy units of gold ETF, it means you are purchasing gold, but not physically.
They trade on the stock exchange and can be purchased and sold just like stocks using a demat account. When you sell your investment in a gold ETF, you do not get physical gold. Instead, you will get the equivalent value of cash. Investing in gold ETFs is not only simple but also inexpensive. They charge a very low expense ratio and are very liquid.
Gold mutual funds
Another alternative to investing in physical gold is gold mutual funds. They invest directly or indirectly in mutual funds. Direct investment is in gold bullion, while indirect investment is in stocks of gold mining companies or gold ETFs.
They are open-ended mutual funds and can be purchased and sold anytime. You don't need a demat account to invest in them, and they can be purchased directly from the fund house or any online mutual fund platform. They are also quite liquid, and you can sell them immediately to get back your investment proceeds.
The best part about investing in gold mutual funds is that you can invest with an amount as low as Rs 500 and schedule a SIP (systematic investment plan) to invest a certain amount every month.
They charge a small fee called expense ratio which will help cover the expenses of managing the fund. Since the expense ratio is deducted from the profits, choosing a fund with a low expense ratio and consistency in performance is important.
Gold futures contracts
Gold futures are standardized contracts where the buyer of the contract agrees to take delivery of gold of a predetermined price and quantity on a future date. When the contract expires, the buyer and the seller have to honour the contract at either profit or loss. The buyer or seller can buy, sell or hold the contract before the date of expiry.
In India, gold futures trade on Multi Commodity Exchange (MCX) and National Commodity & Derivatives Exchange Limited (NCDEX). Gold futures fall under the high-risk category of gold investing. Hence it is suitable only for high-risk mature investors.
Sovereign gold bonds (SGB)
The government of India issues gold bonds through the Reserve Bank of India (RBI). SGBs are issued against grams of gold. The minimum investment is one gram, and the maximum investment is 4 kgs. They pay a fixed interest of 2.5% per annum and also offer the benefits of price appreciation. So, when you decide to sell your investment in SGBs, you will get the market price of gold.
You can sell it at the end of eight years when the bond expires (after eight years), or you can sell it prematurely. However, you can only sell it prematurely in the secondary market after the fifth year. If you sell the bonds before eight years, the capital gains are subject to tax. If you sell the bonds after maturity, the capital gains are tax-free. However, the interest is taxable when you receive it.
Another alternative to physical gold is digital gold. It is rapidly gaining popularity in recent times due to its convenience. You can purchase gold online, and an equivalent amount of physical gold is stored in a high-safety vault. All the gold you purchase is of the highest purity and certified by the government.
You can buy digital gold for an amount as low as Rs 1. Hence it is more affordable to buy gold online. The best part is that you can exchange your digital gold for physical gold anytime you want. In India, only three entities are authorized to sell digital gold. They are MMTC PAMP India, Augmont Goldtech, and Digital Gold India (SafeGold). All the online platforms such as Jupiter Money, Paytm, and Phone Pay tie up with these entities to sell digital gold.
How to invest in Digital Gold Products?
Different types of digital gold products can be purchased through different routes. Below are some of the ways to buy digital gold products.
Using a Demat account
A demat account is a savings account for all your securities. All your financial assets are stored in a demat account. Through a demat account, you can purchase gold ETFs, gold mutual funds and Sovereign Gold Bonds. However, it doesn't make sense to buy digital gold through a demat account as you will have to pay brokerage charges.
Through authorized websites
As mentioned earlier, only three entities have the official license to sell digital gold in India. They are MMTC PAMP India, Augmont Goldtech, and Digital Gold India (SafeGold). You can visit the websites of these three entities and purchase digital gold.
The terms and conditions for each of the websites are different. For example, MMTC PAMP India doesn't require a customer to complete KYC. However, for SafeGold and Augmont Goldtech, KYC is a must, and you must furnish your PAN if your purchases exceed a threshold limit.
You can purchase digital gold with an amount as low as Rs 1, and there is no limit on the maximum amount of investment. However, you won't be able to sell gold whenever you want. SafeGold and Augmont Goldtech have a waiting period of 48 hours from purchase for security reasons. In the case of MMTC PAMP India, you can sell gold only if the sell-back window is active. MMTC PAMP India has the right to open or close the sell-back window at its discretion.
These websites also charge storage costs. The storage costs of up to five years are free for all the websites. However, after five years, SafeGold and Augmont Goldtech charge a 0.3% fee for storage. MMTC PAMP India, on the other hand, asks the customers to sell gold or convert it into coins.
Through payment apps
Payment apps such as Google Pay, Paytm, and Phone Pay allow you to buy digital gold through their apps. You have to open the app, select the 'Gold' option, and enter the value in grams or rupees. Then you have to pay it through UPI or debit card to get the gold in your digital gold account. You can also sell the gold anytime you want on these apps.
These payment apps tie up with the above-mentioned three entities to sell gold. There is hardly any price difference between authorized websites and payment apps. The KYC norms and minimum and maximum purchase limits vary across apps, but they all fulfil the purpose of investing in digital gold.
Buy Digital Gold Online in India
Many fintech apps provide an option to purchase digital gold online. Following are some of them.
Jupiter Money has partnered with MMTC -PAMP to offer digital gold on its platform. Through Jupiter Money, you can invest in 24K gold with 99.99% purity. You can buy and sell gold anytime during the day at live market prices. The app gives you a lifetime free storage of gold in secured vaults. Moreover, you can sell your digital gold and get money into your Jupiter account anytime easily. The app also allows you to auto-save a certain amount daily, weekly, and monthly to ensure you keep up with your investments.
Good Pay is another app that has partnered with MMTC -PAMP to offer digital gold. Similar to Jupiter Money, you can purchase 24K gold with 99.99% purity with any amount of money. The gold you purchase is stored in a gold locker which can be accessed only by you. Apart from buying and selling, you can also gift gold to other Google Pay users. In case you want to convert your gold, it will be delivered to your doorstep for a small delivery fee.
Paytm, the payments bank, also offers digital gold. You can buy, sell, and gift gold at any time of the day. To buy gold from Paytm, you have to enter the amount you want to invest and click on buy. You can also create a savings plan to invest weekly or monthly in gold. In case you want to convert your gold, it will be delivered to your doorstep.
Which is Better: Physical Gold or Digital Gold?
Both physical gold and digital gold have their own pros and cons. It is the sole discretion of the investor whether to buy physical gold or digital gold. Following are some of the major differences between physical gold and digital gold, which will help you understand which is a better choice for you.
- Purity: In the case of digital gold, purity is guaranteed. Your gold purchases are backed by 24K 99.99% purity gold. However, the same is not the case with physical gold. The gold purity may or may not be 99.99% purity.
- Price: The price of digital gold is uniform across the country, but the price of physical gold isn’t uniform.
- Investment amount: In the case of physical gold, you will have to purchase gold coins or biscuits, which require a minimum amount equivalent to the value of gold. However, in the case of digital gold, you can buy gold in terms of weight or in terms of amount. In fact, you can start buying digital gold with an amount as low as Rs 1.
- Cost: When purchasing physical gold, you will have to pay close to 30% as making charges. However, with digital gold, you pay a GST of 3%, and in the case of gold ETFs, or gold funds, you pay an expense ratio of up to 3%.
- Storage: Storing physical gold can be a hassle as you will have to invest in a locker, and there is also a high risk of theft. In the case of digital gold, it is stored in secured vaults, and you need not worry about theft.
It can be clearly seen that digital gold is a better alternative for investment purposes. However, in the case of consumption, it is best to stick to physical gold. Be it physical or digital gold, it is best to have 10-20% of your portfolio dedicated to gold. This is because gold is the only investment that can create a hedge against inflation and can also protect a portfolio from the volatility of the markets.
Gold Price Over the Years
Below is the average annual price of gold from 1964 to 2023.
What is the Right Time to Buy Gold?
Before buying gold, it is important to check the price. This is because various factors, such as social, political, and economic factors, affect the gold price. Take, for example, inflation and recession, the gold prices rise during these times. This is because when inflation goes up, people use gold to hedge their portfolios against it.
Also, gold prices rise during certain months of the year due to high demand. Hence it is best to buy gold before these months start. So the best months to buy gold are early January, March and early April, or mid-June to early July.
Things to Consider Before Buying Gold
Physical gold has making charges
All the jewellery that you purchase has making charges. It is charged over and above the cost of gold, generally around 10-20%. So if you are purchasing gold for investment, then stick to coins, biscuits, or even better, digital forms of gold.
Storage and theft are problems with physical gold
When buying physical gold, you should create storage space to keep the gold safe. This can be an additional cost for you. Moreover, there is always a risk of theft in the case of physical gold.
Taxation on capital gains
Gold is an asset, and when you sell it, you will incur capital gains. These capital gains are subject to tax, depending on which type of gold you have invested in. For physical and digital gold, the capital gains are taxed based on the holding period. For short-term capital gains, the tax rate is similar to an investor's slab rate. The long-term capital gains are taxed at 20% with indexation. For gold funds and gold ETFs with equity exposure less than 35%, the gains are taxed at the investor's tax slab, irrespective of short-term or long-term gains.
Frequently Asked Questions
Which digital gold is the best?
There are multiple ways to invest in gold, such as Gold ETFs, sovereign bonds, gold mutual funds, and digital gold. The best digital gold alternative is the one that suits your requirements. If you want to invest in gold to take benefit of the price change, gold ETFs, sovereign bonds, and mutual funds are good alternatives. However, if you want to invest in gold to convert it into physical gold one day, then digital gold is better.
Is digital gold safe to buy?
Yes, digital gold is very safe to buy. The gold comes with 99.99% purity, and hence you need not worry about the genuineness and purity. Also, the gold is stored in a secure vault, and there is no threat of theft as well.
Is digital gold profitable?
Digital gold is backed by physical gold. Hence it gives the same return as physical gold. Since gold is one commodity that grows in the long term, investing in digital gold is profitable.
Is digital gold taxable?
Capital gains on gold are taxable. If you sell your digital gold in the short term (before three years), the capital gains are taxable at the income tax slab rate. Suppose you sell the digital gold in the long term (after three years), the capital gains are taxable at 20% with an indexation benefit.
Is digital gold a good investment?
Gold acts as a perfect hedge against inflation. It is the only commodity that can help beat inflation in the long term. Moreover, it helps prevent the downside risk of a portfolio. Hence having gold in your portfolio will help boost the overall portfolio returns.
Is it worth buying digital gold?
Yes, digital gold is an excellent investment alternative if you are looking to invest in gold. Firstly, you need not worry about the purity as digital gold is backed by the highest purity gold. Second, the gold is saved in a secured vault, so there is no threat of theft. Third, gold is a perfect alternative for diversification, be it digital or physical.
When to buy and sell digital gold?
The value of digital gold will be the same as physical gold. Since the price of gold peaks during certain months, the best time to buy digital gold is January, March and early April, or mid-June to early July. You can sell your gold any time when the gold price peaks.
Does digital gold price increase or decrease?
Yes, the price of digital gold is the same as physical gold. Hence the price of digital gold fluctuates based on demand and supply.
Can NRI buy digital gold in India?
Yes, NRIs can buy digital gold in the form of gold funds, gold ETFs, and e-gold. E-gold is traded on the stock exchange just like shares, where one unit equals one gram of gold.
Can we withdraw digital gold?
Yes, you can convert digital gold into physical gold whenever you want. Some services offer you to convert your digital gold into money only by selling it on the same platform you bought from. Read terms and conditions very carefully and invest as per your requirements.
Can I convert digital gold to physical gold?
Yes, you can convert digital gold to physical gold. Some apps and services offer to deliver the gold to your doorstep at a cost.
Is digital gold costlier than physical gold?
Digital gold is priced at the same rate as physical gold. Also, digital gold is backed by physical gold, so there is no difference in the price.
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