In our previous article on investing in digital gold, we covered why and when does it make sense to invest in gold and the advantages digital gold offers over physical gold. Now, we would like to shed some light on the various options available for buying digital gold and the investment considerations under each option. Hope you will enjoy reading this article!
Digital Gold buying Options
1. Wallets and stockbrokers powered by metal trading companies
Mobile wallets like PayTM, PhonePe and stockbrokers like HDFC Securities, Motilal Oswal etc. provide an option for their customers to purchase digital gold through their platforms. However, these companies are only platform providers and not the actual sellers, the actual sale of gold happens through metal trading companies (Safe Gold, MMTC-PAMP). Once an investor makes a transaction on the platform company’s portal (mobile wallet/trade terminal etc), an equivalent amount of gold is purchased by the metal trader company and stored in secured wallets, which are 100% insured.
2. Gold ETFs on Stock Exchanges
Investing through gold ETF is very similar to investing / trading of shares on the stock exchanges. The price of ETF is directly linked to the value of gold bullion on the local and global commodity markets. The price of one unit of ETF is equivalent in value to one gram of gold.
3. Gold Funds through mutual fund houses
Gold mutual funds are very similar in comparison to Gold ETFs with regards to nature of operation and underlying price discovery. They offer additional benefits of the mutual fund world to investors like setting up systematic investment plans (SIPs), investing passively without DEMAT account and ease of traceability.
4. Sovereign Gold Bonds offered by RBI
Sovereign gold bonds (SGBs) are government securities denominated in grams of gold. They are issued by the Reserve Bank of India (RBI) on behalf of the government. The government pays an interest of 2.5% on the amount invested in SBGs which is an additional benefit, not present in any other option. Exemption of capital gains tax if held till maturity is also unique to SGBs. In the case of bond transfer, indexation benefits will also be provided to long terms capital gains.
SBG will have a total tenure of 8 years with the option to exit on 5th, 6th and 7th years, that need to be exercised at the time of interest payment. These bonds would also be traded on stock exchanges, but with less liquidity.
Investors must understand the various considerations like investment and tenure limits, taxation, traceability and price discovery under each available option and how they would affect their individual investment needs, before making a final decision.
Disclaimer: Gold investments are subjected to market risks. We are not recommending investing in gold or a specific option here, our endeavour here is to educate the retail investor on the options they have to invest in digital gold and the considerations for making an informed choice.