Reasons to Invest in Digital Gold & the Risks Involved

The affinity that Indians have for gold is tremendous. This versatile yellow metal is bought for aesthetic, investment, financial security, and auspicious purposes among others. We are one of the largest consumers of gold. However, the concept of investing in a digital form of gold is fairly new. There’s a growing awareness of the many advantages digital gold has over physical gold.

Liquidity and storage are some of the areas where digital gold scores over physical gold. Storing the gold at home is risky and renting a bank locker means paying extra as locker rent. And in the event of a financial crisis, selling off gold to generate funds is also a daunting task. More often than not, the actual value we get upon selling gold articles leaves us underwhelmed. When you sell or redeem the digital gold investment, you are assured of getting a value according to real-time digital gold prices.

Why should you invest in Digital Gold?

Digital gold is a virtual way of buying and investing in 24k or 99.5 percent purity gold without having to physically hold the gold. Investing in digital gold is a technologically advanced take on the traditional way of buying gold. The entire process, from application to allocation, is completed conveniently and discreetly from the comfort of your home. And the most attractive feature is that you can buy gold for as low as Re 1 which isn’t possible in the traditional way of purchasing gold.

The company providing this service acts as the intermediary that buys the physical gold on your behalf and stores it in insured and secured vaults. Thus, the risks associated with the safekeeping of these valuables are completely mitigated. Your digital gold investment is 100% insured until the gold is safely and securely physically delivered to you.

Why Does Buying Digital Gold Make Sense?

One of the most attractive features of a digital gold investment is liquidation flexibility. When you redeem the digital gold investment, you can either have the equivalent physical gold safely delivered to you or the redeemed amount is transferred to your bank online.

The comparison chart below between the conventional way of buying gold and that of buying gold digitally showcases why digital gold is a smart investment.

	Conventional Gold Purchase	Digital Gold
Investment	Requires a large sum of money for making jewellery, coin, bar or bullion purchases.	The minimum investment starts from as low as Re 1.
Gold Price	The price per gram of gold could vary with different jewellers	There’s no ambiguity in gold prices as sell/purchase of digital gold depend on real time gold prices.
Authenticity	Quality and purity of gold could vary for different jewelers and not always guaranteed.	Quality and purity is guaranteed. Digital gold is always 24k or 99.5% pure gold.
Storage	Gold items have to be stored either at home or in a bank locker.	The digital gold company stores the gold in highly-secured and insured vaults.
Security	There’s a threat of theft, robbery or damage.	The stored gold is 100% secured.
Charges	Buying gold articles incur making charges while on selling the gold, making charges etc are deducted from the final price. These charges could vary greatly with different jewellers. Additionally, there could be locker rent charges.	Standardized GST Charges, making, storage or delivery charges may apply.
Liquidity	Selling of gold articles could be cumbersome and time-consuming.	Digital gold can be sold or redeemed at real-time market prices whenever desired.
Convenience	May require physical visits to a jewellery store and then transporting it back home .	This gold investment is 100% online. Upon redemption, the physical gold is securely delivered to you.

Risks Involved in a Digital Gold Investment

Although an investor can very easily buy digital gold from various mobile e-wallets such as Paytm, Google Pay, and PhonePe, he/she should be equally aware of some of the risks of this investment.

Lack of regulatory bodies and guidelines: The actual physical gold bought under your name is provided by companies such as Augmont Gold Ltd, and MMTC-PAMP India Pvt. Ltd and Digital Gold India Pvt Ltd (SafeGold brand). The storage of the gold in the vaults is handled by an intermediary or third party. There’s no regulatory body that conducts independent audits to oversee and validate the purity, quality, and security of the physical gold.
No interest is paid on the Investment: Apart from the appreciation in the digital gold prices, there’s no interest paid on the actual investment. Thus, it cannot be considered a passive source of income.
Added GST Cost: When you buy digital gold, you need to pay a 3% goods and services tax (GST) just like in the case of buying physical gold. This increases the cost of the investment.
Limited Holding Period: Most platforms have a maximum holding period after which the investor has to mandatorily take physical delivery of the gold or sell it back.
Limit on Daily Purchase Limit: On most platforms, the amount of daily digital gold investment has been capped at Rs 2,00,000.
Delivery and Making Charges: During the delivery of digital gold, holding companies may charge a small management fee for holding the gold for you. Depending on the design of the physical gold article, making charges may apply. This again adds to the total cost of the digital gold investment.