You Can Lease Your Digital Gold to Jewelers for 5-6% Yield, But Know the Risks

SafeGold customers can give a minimum of 0.5 gm and a maximum of 20 gm of their holding to lessees, mainly small and medium jewelers listed on the platform. The lease period is for 46-176 days and offers a yield of 5-6% per annum. The return is calculated on a daily basis and credited in the customer’s SafeGold account in the form of grams of gold at the end of every month. At the end of the lease term, the customer’s SafeGold account is credited in full with the last month’s income.

Currently, this leasing option is only available online on the SafeGold website, and is not offered through its distributors. Customers will not have to pay any charges for this transaction. yield earned from leasing out digital gold Nimit Consultancy founder Nitesh Buddhadev said that income from other sources is taxed as income, which is at the slab rate.

How is gold insured?

Gaurav Mathur, Founder and Managing Director, SafeGold said that SafeGold takes a bank guarantee of 110% of the total gold value from the jeweler before giving physical possession of the gold.

The collateral is to be topped up by the jeweler as per the daily price movement of the gold, failing which SafeGold will invoke the bank guarantee, buy gold corresponding to the amount leased by the customers and deposit it back into their digital gold account.

“When the collateral falls below 105% due to an increase in the price of gold and remains so for three consecutive days, we will use the bank guarantee. Other instances where we invoke bank guarantees are if the jeweler does not pay the produce in any month, does not return the gold after the lease expires, or closes shop,” Mathur said.

While this can reduce your credit risk, it does not guarantee your returns or full repayment of the principal.

know the risks

Digital gold is unregulated, and so is gold leasing offering. This means you will have no legal recourse if you suffer any damages. However, since the collateral covers up to 110% of the principal, a large loss can only occur if the prices rise sharply within a short period of 1-2 days.

“In a serious event like Russia launching a nuclear war on Ukraine, gold prices could rise by 20-30% overnight and the collateral could drop by 10-20%,” says Mathur. In such a situation, there is a chance that the jeweler may default in pledging more collateral and the user will face the risk of withdrawing the principal amount.”

SafeGold states in its risk declaration that, despite being a collateral-based insurance, “the company does not guarantee your capital or any returns, and there is no recourse available to you on the company” from the jeweler in the event of default.