Is digital gold a good way to buy the yellow metal? 5 things you should know

 We are now in the beginning of festive season, 2024. Eager gold buyers and spenders once again look to purchasing the yellow metal. What's different, however, is that just like every other aspect of our live, the focus may be on the digital variant of gold now too. After fintech platforms, jewelers are also offering digital gold. Should you move over traditional physical and paperless forms when buying this commodity? 

What is digital gold?

This is an instrument that allows you to invest in pure gold in digital form. The seller stores an equivalent quantity of physical gold in secured vaults. After making the payment, the buyer gets an invoice and the said quantity reflects under vault balance in your account with the service provider. Customers can sell this gold at any time at live market rates, in either rupees or grams. They can also take possession of the gold in physical form such as coins or ornaments, adjusted for any making charges and packing cost. There is no upper limit for purchase of digital gold. However to buy maximum limit in gold id 2lakh per day. 

Who is offering digital gold?

In India, digital gold is primarily sold by three entities—MMTC PAMP, Augmont Goldtech and Digital Gold India (SafeGold). These firms have tied up with service providers like PayTM, Google Pay, Amazon Pay and PhonePe, among others, to sell digital gold via their platforms. Lately, jewelers like Tanishq, Senco and Kalyan Jewelers have also started offering digital gold through similar tie-ups. Customers can open digital gold accounts with the refiner directly or through any of the partner platform. 

How is it better than buying physical gold?

It essentially facilitates holding gold virtually without owning a safe or bank locker. So you don’t have to worry about storage and security. Digital gold investment is made in certified 24 carat, 999.9 pure gold held in the vaults of the custodian. Physical gold often faces issues of impurities. Further, buying physical gold entails high making charges. A digital gold account comes at no cost apart from 3% GST. The digital gold price is the same across India, therefore you can buy and sell gold at fully transparent, live market rates. You can also sell your gold digitally back to the platform whenever you want without facing any deductions. Most platform provide the benefits of doorstep delivery of physical gold at small cost, if redeemed in this form. Besides digital gold allows purchase in much smaller denomination than actual physical gold.

How is it different from paper gold?

Most of the above benefits of digital gold are also enjoyed by other forms of non-physical gold such as gold ETFs and gold funds. Where digital gold differs from other options is in the cost. Digital gold does not attract any cost apart from one-time levy of 3% GST. Both gold ETFs and gold funds incur recurring annual charges of around 0.5-1%. You don’t need to hold a demat account to buy digital gold, like in case of gold ETFs. Further, digital gold can be bought in very minute quantities at a time. Most platform as well as jewelers like Tanishq & Kalyan jewelers , allows buyer to purchase digital gold for little as RS 100. The gold refiners even permit purchase at price low as Rs 1 or equivalent 0.1gram. Some platform also facilitate online transfer of your gold balance to another account. The gold balance can be transferred only to account on the same platform . This makes for a convenient gifting options.

How safe is it?

The entities who actually sell digital gold serve as custodian of your accumulated gold, whether you buy directly or via any partner platform. A trustee is appointed to oversee quality and operation of vaults. At no point does the ownership of your accumulated gold transfer to either the partner service provider or the custodian. The physical gold is stored in secured vaults that are fully insured for any eventualities— loss due to theft or damage caused by natural disasters. However, customers, do not have the option to go and inspect if it is actually backed by physical gold.

Currently, digital gold is not directly under the purview of any regulatory body. So there is an element of risk as rules are not yet in place to govern this new arena. With rising popularity of this product, the amount of gold stored in vaults is also rising at a fast clip. However, Sebi is expected to introduce norms for digital gold very soon. It recently barred brokerage platform from offering digital gold.