This Dhanteras, buy digital gold!

As per Hindu popular belief, buying gold during Dhanteras is considered auspicious. Otherwise also, in our country, gold is considered to be a safe investment. Therefore, we, Indians, prefer buying gold jewellery or accumulating gold coins on such auspicious occasions.

In recent times, gold as an investment has given spectacular returns, which otherwise was dormant for quite a long time. Further, investment in gold is considered to be a good hedge against inflation. Also, they are negatively correlated to equities. Hence, when the equities witness steep volatility as it was witnessed in March this year, gold does shine. So, if you are looking to buy gold in this Dhanteras, then buying digital gold would be much more beneficial. Here is a short guide to know how to invest in gold digitally.

Sovereign Gold Bonds

Issued by Reserve Bank of India (RBI), Sovereign Gold Bond (SGB) is denominated in the multiples of grams of gold with the basic unit being one gram. The minimum investment of one gram is mandatory. Further, apart from capital appreciation, these bonds also offer 2.5 per cent of the annual interest to its investors. Though, investors need to bear in mind that this is a simple interest in the principal amount. On the maturity front, these bonds mature post completion of eight years and one can exit from them only after the fifth year of investment. The redemption depends on the prevailing gold price at the time of redemption. The eighth tranche of SGB is open now and would be closing today i.e. on November 13, 2020.

Gold Mutual Funds

Gold mutual funds basically are open-ended fund of funds (FoF) that invests in units of gold exchange-traded funds (ETF). In order to invest in them, neither do you require a Demat account nor any middle-man. You can directly invest in them by visiting the respective asset management company’s (AMC) website wherein, you only require being a KYC compliant, having a PAN card, and entering bank details. Some mutual funds also offer funds, which invest in international gold. However, frankly speaking, you don’t need to have exposure to it, as it adds additional currency risk. Funds investing in domestic gold are more than enough.

Gold ETFs

Gold ETFs are basically the funds that invest in physical domestic gold and are listed on exchanges. This means that you can trade them like shares. Every single unit of gold ETF represents half a gram of 24 carats of physical gold. As these can be traded on exchanges, it provides great liquidity as they can be sold anytime during trading hours. Further, they are traded at prevailing market prices of physical gold. Hence, investors get a chance to buy or sell gold at the market price without paying a premium on purchase or selling at a discount.

Though, if you are someone, who wish to hold physical gold just for investment purpose, then digital gold would be a better option over physical gold. However, if you are going to take gold from the usability perspective in the near-term, then physical gold would be an ideal choice over digital gold.

2 comments on article "This Dhanteras, buy digital gold!"

Chinnappan Arulappan

Only the name contains GOLD; they will not give you gold on maturity. Neither one can buy gold on maturity with the matured amount without paying the Tax etc., It will attract only the mere Greedy people and may start new gambling also. In future they may levy some other tax also on the profit! Why one should invest in it?

11/13/2020 12:01 PM

Henil Shah

Absolutely! You won’t be receiving physical gold on maturity after selling or redeeming gold ETFs or mutual funds. Secondly, when it comes to buying digital gold, you are getting the spot price of pure 24-carat gold. However, if you buy the same thing in its physical form, you would buy at a premium and sell at discount. Let me give you an example: Let’s assume the spot price of gold is Rs 50,000. So, when you buy physical gold, you might need to shed Rs 52,000 while on the contrary, if you want to sell, you might get Rs 48,000. However, in the case of digital gold, you will get the entire sum i.e. Rs 50,000.

Regarding tax treatment, the tax treatment is similar to that of physical gold. If you sell it before three years, then the gains would get added to your income and taxed as per slab rates. However, if you sell it after three years, then it would be taxed at 20 per cent with indexation benefit. In such a case, only the sovereign gold bond (SGB) is an exception, where the maturity amount is not taxed. Having said, the 2.5 per cent interest is taxable. Also, if you sell the bond before maturity, the gains from such a sale are taxable as explained above. Further, in the future, even if they levy any additional tax, it won’t affect the investments that are made now. It would be applicable for fresh investments made post any such new tax treatment.

When it comes to physical gold, you don’t get any interest at all, unlike SGB. In fact, you need to bear the cost of holding & carrying the physical gold along with the rent of a locker. Further, even if you keep it at home, then in situations such as burglary, natural calamities, etc. holding physical gold becomes risky.

Therefore, if your whole purpose of buying gold is from an investment perspective, then it makes much more sense to invest in digital gold.

1/7/2021 3:19 PM

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