Investment in gold is known as safe haven investment as it acts as a diversifier and mitigates losses in times of market stress.
With the global lockdown due to the COVID 19 pandemic, there was a flight to safety towards gold.
Investment in gold is known as safe haven investment as it acts as a diversifier and mitigates losses in times of market stress. Apart from providing liquidity with no credit risk, gold also improves overall portfolio performance by generating long-term returns.
However, holding physical gold comes with storage cost due to risk of theft, burglary etc. To keep physical gold safe, one has to hire a locker and/or take insurance cover. Apart from locker rent, banks also put investments in Fixed Deposit (FD) as a condition of allotting a locker, which also adds to the cost of holding physical gold.
Due to the risk and cost of holding physical gold, investments in digital golds are gaining popularity.
“Investing in digital gold is basically buying gold in dematerialised form or in mobile e-wallet. Currently, Augmont Gold Ltd., MMTC-PAMP India Pvt. Ltd. and Digital Gold India Pvt. Ltd. are offering digital gold through various fintech and brokerage companies like PayTM, Amazon Pay, Google Pay, PhonePe, HDFC Securities, Motilal Oswal, etc,” said Insights by Gopal Bohra, Partner, NA Shah Associates.
“Investment in digital gold comes with various benefits such saving in storage cost and making charges, quality assurance, redemption/liquidation as per convenience, flexible investment either in any desired minimum value or quantity, etc,” he added.
Like physical gold, digital gold also attracts capital gain tax at the time of redemption of the investment.
“As such there is no tax implication on investment in digital gold. However, if the investment in digital gold in aggregate in a year exceeds Rs 50 lakh, the seller will collect TCS @ 0.1 per cent on the amount exceeding Rs 50 lakh. Long term capital gain tax will be levied if digital gold is redeemed or liquidated after 36 months from acquisition and in other cases short term capital gain tax will be levied,” said Bohra.
Apart from digital gold and gold ETF, investment in Sovereign Gold Bond (SGB) is also becoming a preferred way of investing in gold.
“Those who are looking for long term investment in gold, prefer Sovereign Gold Bonds because these bonds pay interest @ 2.50 per cent per annum apart from appreciation in gold price. However, during the lockdown period digital gold business has seen significant increase,” said Bohra.