Dhanteras 2021 Gold Buying Guide: Is Digital Gold as Good as the Real/Physical Gold?

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Dhanteras 2021 Gold Buying: Gold continues to be one of the favourite investment options for many, especially during festivals like Diwali and Dhanteras. There are many ways in which you can invest in Gold. While buying physical Gold in the form of coins, bars or jewellery is arguably the most popular way of buying Gold in India. Other options include Digital Gold or investing in the yellow metal through Sovereign Gold Bonds (SGBs) or Gold ETFs.

Through digital or physical Gold, buyers can opt to hold the yellow metal in their own custody. In the case of SGBs and ETFs, no real gold is provided to the buyer/investor.

As having real gold in hand is what most of the Indians aspire for while buying during Dhanteras, we take a look at whether digital gold is as good as real (physical) gold and what could be the best way to invest in gold during Dhanteras.

According to a World Gold Council (WGC) report, the Covid-19 pandemic disrupted the brick and mortar business model of Indian gold retailers. The pandemic became a catalyst for online channels to boost sales. However, the online gold market in India is still in its nascent stage, accounting for just around 1-2% of overall gold sales by value.

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“Online retail adoption surged during Covid-19 across categories. Though relatively nascent at around 1-2%, online gold market in India is seeing a significant push from both digital players who see this as an opportunity and large jewellers who view this as a vital addition to their brick and mortar strategy,” Somasundaram PR, Regional CEO, India at WGC told FE Online.

Digital Gold vs Real Gold

Anika Agarwal, President, Consumer Business, MMTC-PAMP, said that, unlike physical gold, one may start investing in digital gold with as little as INR 1 and go up to Rs 200,000/day. Physical gold requires the buyer to buy a minimum amount ~1 gm gold to acquire the product. However, both modes of purchase are taxed on the same slab at 3%.

“Over the last few centuries, Gold has served as a source of wealth and a popular investment choice for many. Even during the pandemic, institutions like central banks across the globe invested heavily in gold. In recent times, we have also seen an increasing adoption trend towards digital gold as an asset class, especially among young millennials and GenZ investors. Digital Gold has become the preferred way of investing in gold for digital-first investors, given its highly liquid and flexible nature,” Agarwal told FE Online.

She further said that digital gold holdings can be redeemed for purest certified physical gold units in the form of bars, coins, and ingots. One can also directly sell digital gold and receive money via instant bank transfers.

However, there are certain risks with digital gold too. For example, most of the gains from digital gold could be exhausted by storage fee and GST.

Ajinkya Kulkarni, Co-Founder at Wint Wealth, said that while digital gold investment can seem attractive with benefits like minimum range starting from Rs. 100, transparency and no purity hassles, its 3% storage fee to the platform and 3 % GST can exhaust all or most of your returns.

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The traditionally preferred physical form of Gold investment also has a 3% GST on the purchase and other factors like locker storage availability plus cost and making charges for jewellery, he added.

Which is better? 

In an age where alternative forms of investments are gaining tremendous popularity, gold is still one of the safest assets to invest in.

Kulkarni said the yellow metal is always good to diversify your portfolio but make sure to invest in gold only with a small allocation (less than 10% of the total portfolio).

“If looking to store physical form of gold at home to avoid the storage fee then there is the risk of theft to consider. Also, generally, this would be gold in the form of ornaments that have exorbitant making charges. Apart from this, the limit set by the government is another critical aspect to consider,” Kulkarni told FE Online.

Agarwal said that time and again, gold has proven to be a hedge against inflation and market uncertainty. “Moreover, it is the most liquid asset and is something that can be passed across generations. Investing in gold is hassle-free and involves minimum to no risk when compared to other options like debt, equity etc.”

However, Kulkarni suggested that instead of digital or physical gold, one should go for SGBs and Gold ETFs as investment options for better returns.

“I would suggest rather opting for Gold ETFs for short term investment and if you are sure about gold investing for the long term, go for Sovereign Gold Bonds (SGBs). This will be a safer approach to get maximum returns in a low risk environment,” Kulkarni said.