Things to keep in mind while investing in digital gold

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Updated: October 20, 2021 1:12 AM

One must understand that gold returns are often inversely related to market returns, i.e. when equities rally, gold prices may correct and when there’s uncertainty in the market, gold tends to rally, and usually to historic highs.

Gold Rate Today, Gold Price Today in India, gold loan, gold loan Interest Rates, Indicative EMIs, Rs 1 lakh Gold Loans, RBI, loan to value ratio, LTV ratio, banks, NBFCs, SBI, HDFC Bank, Punjab & Sind Bank, BoI, PNB, Muthoot Finance, Manappuram FinanceOne could start with as low as Rs 100, and steadily keep adding on a weekly or monthly basis to collect and hold a substantial amount in gold reserves over time, offering a feeling of safety and security.

Digital gold is essentially gold that is bought by a user through an intermediary (various investing platforms) who purchases and holds the gold for the buyer in physical form, be it in vaults/lockers that are audited and insured.

Ashraf Rizvi, Founder and CEO, Gilded, says, “The title of gold ownership belongs to the purchaser and, hence, is the property of the sole owner. This is different from paper gold like ETFs or SGBs that emulate gold prices but don’t hold physical gold.”

He further adds, “While purchasing gold in the form of jewellery in physical stores, one cannot always ascertain the purity of the gold (18k, 20k, 22k, 24k), which is usually low in the case of intricate jewellery, since other metals are added to make the ornaments more durable.”

On the other hand, digital gold is the purest 24-carats gold since it is sourced directly from the miners, such as MMTC-PAMP (a joint venture between MMTC Ltd, a Govt of India Undertaking, and PAMP S.A. of Switzerland), Augmont Gold that sell pure gold via partnerships with various apps.

Charges and Tax implications

While liquidating the gold too, experts say one incurs no further charges, unlike physical gold, which ensures maximum returns to an investor, depending on market rates at the time.

When the digital gold is sold any time after 3 years, long-term capital gains tax rate at 20 per cent (plus applicable surcharge and cess) is applicable. However, Razvi adds, “the actual tax outgo may be lower owing to indexation benefits available on such long-term gains. When the digital gold is sold within 3 years, individuals will be taxed at the slab rate applicable to such individuals.”

Note that, gifting of digital gold can take place between immediate relatives without any tax outgo. Further, experts say, gifting digital gold to other persons up to the value of Rs 50,000 too is exempt from tax both in the hands of the holder of digital gold and recipient of the gift, subject to compliance with prescribed conditions.

Where to buy

Digital Gold could be bought via various online platforms such as Gilded, Paytm, etc.

Razvi says, “With the recent SEBI regulation in effect, registered brokers have been asked to stop selling digital gold due to ongoing policy decisions by the government, although unregistered brokers/pure-play gold investment applications continue selling on their platform and consumers continue to purchase till date.”

Convenience and liquidity

Digital Gold is considered highly liquid and safe since the ownership of the gold belongs directly to the investor.

Razvi says, “It does not matter if the platform survives or not, an investor’s gold will continue to be their possession and they can hold/sell it, as they desire.”

He further adds, “One could sell-off one’s holdings at any time of any day since prices are decided by the market – hence, choose to sell when it is high, ensuring maximum returns.”

ROI

Gold has steadily grown in value over the long run, giving more than decent returns for a safe asset, to the tune of 15 per cent in the last five years. During the last year itself, gold has given returns of more than 40 per cent, due to the sudden rally in prices caused by the pandemic.

Razvi says, “One must understand that gold returns are often inversely related to market returns, i.e. when equities rally, gold prices may correct and when there’s uncertainty in the market, gold tends to rally, and usually to historic highs.”

He further adds, “Leaving aside the returns factor, gold was traditionally always a safe store of value, a fall-back asset that one could rely on when times get tough.”

Hence, while investing, one must make sure that they have exposure to gold in their portfolio (some advisors recommend 10-15 per cent), as a hedge against the risks in the equities market and other volatile assets.

“Lastly, digital gold democratizes the process of gold investments. Earlier, gold could only be bought if one had a significant amount of money. With digital gold, that’s not the case,” says Rizvi.

One could start with as low as Rs 100, and steadily keep adding on a weekly or monthly basis to collect and hold a substantial amount in gold reserves over time, offering a feeling of safety and security.

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