Indian investors have traditionally preferred gold over debt and equity when investing. Gold demand is rising, with 210.2 tonnes sold in the third quarter of 2023, the highest level for gold bars and coins since 2015.
Additionally, the World Gold Council reports a 10% increase in demand for gold, highlighting India's preference for the precious metal, which peaks during the holiday season.
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New gold investment options such as Digital Gold, Gold ETFs, and Sovereign Gold Bonds (SGBs) are gradually being considered as gold investment grows.
But which one would pay you more and be sufficiently adaptable to fit your investment style? We have covered a quick overview of various digital gold investing possibilities in this post and highlighted some advantages.
💡Table of Content
➥ Summary
➥ What is Digital Gold?
In recent years, alternative investment options such as cryptocurrencies such as Bitcoin and Ethereum, sometimes known as "digital gold," have become increasingly popular. The digital asset allows investors to buy and sell gold without holding any metal. Gold is created digitally via blockchain technology, which provides an open and safe transaction ledger.
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This makes digital gold a very safe and reliable investment option, as the price of real gold directly influences the value of digital gold. In addition to enjoying the convenience and accessibility of cryptocurrency trading, investors who possess digital gold may benefit from the security and reliability of genuine gold ownership.
➥ What are Gold ETFs?
A commodity-based mutual fund that invests in assets like gold is called a gold exchange-traded fund, or gold ETF. These ETFs trade on the stock exchange similarly to individual equities and perform accordingly.
In this instance, physical gold is represented by exchange-traded funds in both paper and dematerialized form. Instead of genuine gold, an investor invests in stocks, and upon trading, they are awarded with the same amount of cash rather than actual gold.
➥ What are Sovereign Gold Bonds (SGBs)?
A mutual fund that invests in commodities and holds gold is called a gold exchange-traded fund, or gold ETF. Their performance and how they are traded on the stock exchange mirror those of individual equities.
In this instance, physical gold, both in paper and dematerialized form, is represented by exchange-traded funds. Instead of purchasing real gold, an investor invests in stocks, and when the metal is sold, they are credited with cash equal to the unit's value rather than actual gold.
➥ Digital Gold vs Gold ETF
➥ Digital Gold vs Sovereign Gold Bonds
➥ Digital Gold vs Gold ETF vs Sovereign Gold Bonds
➥ The Advantages of Digital Gold Investing
Greater Returns: Despite the 3% GST on the purchase of digital gold, Digital Gold has the potential to produce higher returns than Gold ETFs.
Complete Gold Investment: Unlike Gold ETFs, where the investment may also contain cash and debt for liquidity reasons, the full amount invested in Digital Gold is reserved for 24K gold.
Extra profits through Leasing: Digital gold investors can lease their gold to reputable jewelers to increase total profits by an additional 3-4%.
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The benefit of investing in digital gold is that, after three years, long-term capital gains are subject to a 20% tax rate, as opposed to the 30% income tax slab rate that applies to gold exchange-traded funds (ETFs).
Indexation Benefit: While Gold ETFs do not offer indexation, investors in digital gold can take advantage of it to lower their long-term capital gains tax burden.
Liquidity: Unlike Gold ETFs, which are limited to trading during market hours, Digital Gold transactions are possible around the clock, offering a higher degree of flexibility. Conversely, SGBs impose limitations on redemptions made before five years.
Minimal Investment Need: Digital Gold is available to a broad spectrum of investors with a minimal investment need as low as Rs. 10. By comparison, SGBs need a minimum 1-gram gold investment, whereas Gold ETFs want a minimum of 0.1-gram gold.
Disciplined Investing with SIPs: Investors can begin daily, weekly, or monthly SIPs (Systematic Investment Plans) in Digital Gold, which will enable them to gradually collect gold.
Ease of Investment and Exchange: Digital gold is simple to give, transform into jewelry, and exchange for real gold. Unlike Gold ETFs and SGBs, which need a Demat account, the investing process is straightforward and simply requires a working phone number.
➥ Important Things to Think About When Investing in Digital Gold
Maximum Limit: The maximum amount that an individual investor may invest on several digital gold platforms is Rs. 2 lakh.
Regulatory Oversight: Investor interests could not be adequately protected since organizations like the RBI and SEBI do not regulate transactions.
Charges for Delivery and Manufacturing: Converting digital gold to physical gold entails fees for both delivery and manufacturing, much like with real gold.
Storage Length: Certain platforms could have a five-year maximum storage duration. After this time, investors have to choose between selling or accepting actual delivery.
➥ Summary
A safe investment option in the age of digital assets, digital gold offers purity, serves as loan collateral, and does away with the storage issues that come with real gold.
It is an attractive alternative because of its benefits, which include greater returns, complete gold investment, lease prospects, liquidity, cheap minimum investment, disciplined SIP choices, indexation benefits, and ease of exchange, even in the face of possible obstacles like regulatory gaps and investment restrictions.
Before purchasing digital gold, investors need to consider their risk tolerance and personal goals about these advantages.
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