Buying Sleep It’s never been easier. Thanks to the emergence of Digital Gold, you can buy this much awaited precious metal in just a few clicks. Added to its appeal is that digital gold can be bought for small sums of money without worrying about safe storage at home. And for this you do not need a demat and trading account with any broker.
digital gold It is a convenient way to buy 24 karat gold backed by physical gold which is insured and stored in vaults monitored by the trusteeship company to protect the interests of the customers. Digital gold is sold by MMTC-PAMP, Digital Gold India Pvt (brand name, SafeGold) and Augmont Goldtech Pvt. You can buy it either by opening an account with these firms or with their distribution partners like Paytm, PhonePe, Flipkart and Amazon. For example, you can buy MMTC-PAMP digital gold from Paytm or SafeGold digital gold from Amazon. Partners only provide a platform for transactions and do not hold the underlying physical gold.
Physical gold stored in a custodian vault is looked after by a trustee, whose role is defined by the terms and conditions of each digital gold provider. But there are no rules standardizing this role and it can be different for all players, according to an industry person we spoke to. Before you go down the digital gold route, here’s what you need to know.
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Other regulated options
Unlike other tightly regulated products such as gold ETFs, gold funds (funds that invest in gold ETFs) and sovereign gold bonds (SGBs), digital gold does not come under the purview of regulatory bodies such as RBI and SEBI. The financial planners we spoke to did not recommend investing in digital gold for the same reason.
investment return
For investors, the investment horizon and the ease with which digital gold can be sold are important factors that must be considered. Based on this, Gold ETFs or SGBs can be a better option. Gold funds can also work for those who do not have a demat account, albeit with a higher expense ratio. However, the underlying gold backing these instruments is largely the same.
Chirag Mehta, CIO, Quantum AMC, explains that Gold ETFs trade at prices in the physical wholesale gold market in India. The pricing of SGB is based on the Indian Wholesale Market data obtained from IJBA. Similarly, digital gold is backed by gold procured from the wholesale market and hence, the pricing is comparable with these instruments.
duty and taxation
So, what does one pay when buying digital gold? In case of jewellery, 3% Goods and Services Tax (GST) will be levied on you at the time of purchase. Also, in general, there is a 2.5- 3% (buy-sell spread) difference between the buy and sell price of digital gold. At the exit, you have two options. You can sell your digital gold in cash (which gets deposited in your bank account) or you can redeem it as physical gold (coins/bars) for delivery. You have to redeem a certain minimum amount. For example, with MMTPC-PAMP and SafeGold, you need to redeem a minimum of 0.5 grams and multiples thereof. There is also a redemption cost: the cost of minting of the gold coin/bar, packaging, insurance and shipping. It is generally a flat charge and does not move up in proportion to the grammar. Cost aside, you also need to check whether your area pin code is eligible for delivery. According to Archit Gupta, Founder and CEO, Clear, digital gold is taxed similarly to physical gold when you sell it. Short-term (holding period up to 3 years) capital gains, if any, are taxed at your income tax slab rate. Long term capital gains with indexation benefit are taxed at 20.8%. However, there is no capital gains tax when redeeming it for physical gold.
Holding period, keeping track
Since digital gold is backed by physical holding, holding digital gold for more than a certain period incurs a storage fee. SafeGold and MMTPC-PAMP both charge for storage beyond five years. Long-term investors should take note. Routine monitoring can also be a challenge. You can log in to your account with the Digital Gold seller/partner distributor to check the status of your Digital Gold holdings.
However, unlike gold ETFs, there is no monthly monthly statement emailed to keep you updated. With a plethora of well-regulated and cost-effective avenues to invest in gold, those who want to play it safe may skip digital gold.