Decoding Digital Gold
It's Akshay Tritiya, the day synonymous to purchase of gold in India, and since we all are locked up in this pandemic, so we decided to decode a new mode of owning gold which is - Digital!
Indians have always had a special bond with gold. Wealth, wisdom and warrant, all are associated with gold. In fact, it is treated auspicious and hence offered to deities at our temples - something being equivalent to “God’s own money”. Due to these reasons, India today has become the biggest importer of gold. However, with pandemic wreaking havoc since the last year and a half, a new form of investing in gold is picking up – Digital Gold. Sounds interesting right? When money is becoming digital then why can’t gold be? Let’s see how you can invest in these digital gold options and are they safe also.
Well historically, gold’s value has been linked to its physicality. Coins, bullion, jewelry were some of the preferred modes to own gold. But physical gold certainly has many downsides attached to it. Storage, safekeeping, legitimacy and making cost are some of the lacunas one must consider while buying gold in physical form. So for investment purpose, all these drawbacks make gold the least lucrative option and hence have paved way for digital investments in this yellow metal. Today, one only needs a smartphone and working internet connection and can start investing in gold anytime, anywhere.
Currently there are 3 companies in India offering digital gold – Augmont Gold, MMTC – PAMP India and Digital Gold India. Now few of the most common apps which we use like Paytm, GPay and Freecharge act as a platform for people like us to invest in digital gold through these companies. Once you go investing in digital gold, these companies purchase equivalent amount of physical gold under your name and store it in their secured vaults.
There are quite a few advantages of this digital gold purchasing methodology like one can invest as low as Re. 1 for buying gold, it is genuine with purity of 24K 99.5%, is 100% insured and if someday you wish to own that gold physically, you may take physical delivery of that gold at your doorstep. However, we’ve grown up hearing that all that glitters is not always gold and therefore, drawbacks are there in this digital gold ownership too. A limit of only 2 lakh for investment through these platforms, lack of an official government watchdog like SEBI or RBI and delivery charges for physical dropping can definitely discourage a few to take this course. However, the biggest impediment in adopting this methodology is the limited time storage facility which is being given by some companies. For something which is considered as a heritage or legacy investment in our nation, one cannot opt for modes where after a few years you are necessarily asked to sell off or take physical delivery of your digital gold. Defeats the entire purpose of it being digital.
Coming now to the final question, should one opt for this digital mode of owning gold? In the current situation, the answer would be to wait and test the waters for some time. There is no second thought on having gold as an investment option in one’s portfolio due to its lesser volatility and global acceptance, but for now there are better and secured options to invest in gold like Sovereign Gold Bonds and ETFs which are better off than digital form. Also, being a hedging instrument, gold should be seen as a long-term investment only so in that case it makes more sense to go for gold bonds which pay an additional 2.5% interest per year. Nonetheless, once the investment limit of 2 lakh is lifted and a government regulatory body is appointed to oversee digital gold services, this new mode could turn out to be a great investment for those preferring physical gold now.
Until then on this auspicious day of Akshya Tritiya, we wish that Goddess Lakshmi shower her blessings on all of us and keep us healthy, wealthy and wise.
By: Anmol Gupta | Isha Garg