Gold holds a huge emotional value for many Indians. Apart from buying it to capitalise on the rising prices, Indians also like to wear and gift gold for special occasions. Earlier, physical gold was the most common way to buy gold. However, in the past few years, investment in gold has taken several forms – Digital Gold, Gold Mutual Funds, Gold ETF (Exchange Traded Fund), Sovereign Gold Bond (SGB), Gold Futures, and more. All of these investment options come with several benefits and help investors build their wealth.
In this blog, we are comparing Digital Gold and Gold Mutual Funds, how they work, their pros and cons, and what should you consider before investing in them.
What Is Digital Gold?
Digital Gold is gold that you can buy in small fractions through digital platforms, like Koshex. When you purchase Digital Gold from a trusted partner, the company buys it on your behalf and stores it under your name in a safe vault. It is a facility that allows you to invest in gold from the comfort of your home.
Digital Gold is similar to physical gold in most ways. The difference is that you can buy, sell, and transact it using technology. Moreover, it is better than buying jewellery as the making charges tend to reduce the value of gold that you buy from jewellers.
Due to these reasons, digital gold investments are gradually beginning to emerge as one of the most popular investment choices for new-age Indian investors.
What Are Gold Mutual Funds?
They are open-ended mutual fund schemes that directly or indirectly invest in gold reserves. Usually, the AMC (Asset Management Company) invests in stocks of gold-producing or distributing syndicates, stocks of mining companies, and physical gold.
In India, gold mutual funds primarily invest in Gold Exchange Traded Funds (ETFs). As the underlying asset is held in the form of physical gold, its value is directly dependent on the price of the yellow metal. Gold ETFs are listed on major stock exchanges just like equity shares.
Comparing Digital Gold vs Mutual Funds
In the table below, we compare the differences between Digital Gold and Gold Mutual Funds.
| Parameters | Digital Gold | Gold Mutual Funds |
| Liquidity | High liquidity with instant buying and selling options through various platforms like Koshex and digital wallets. | High liquidity; mutual fund redemptions may take a few days. |
| Accessibility | You can buy it from investment platforms like Koshex and different digital wallets. | Can invest in them through investment platforms like Koshex. |
| Costs & Fees | A GST (Goods & Services Tax) of 3% is applicable on the purchase of Digital Gold.Also, a charge between 2% to 3% is applicable, which provides for the expenses like the cost of storage, insurance, and trustee fees. | Include expense ratios, which can range from 0.5% to 1.5% of the fund’s assets, covering fund management and operational costs. |
| Minimum Investment Amount | As little as ₹1. | It could range from ₹100 to ₹500 and may vary depending on the fund house. |
| Storage & Safety | While you don’t have to worry about physical storage, the provider typically charges a fee for secure vault storage. | No storage issues, as you don’t directly own gold but shares of a fund. |
| Taxation | Capital gains held for less than three years are taxable at applicable income tax slab rates.Long-term capital gains tax is applicable on selling after three years at 20.8% (including cess) with the indexation benefit. | Investments held for less than 24 months are called short-term capital gains (STCG) and are taxed at the investor’s income tax slab. Investments held for more than 24 months (LTCG) are taxed at 12.5%. |
| Regulatory Oversight | Not directly regulated by SEBI, but major providers adhere to guidelines for transparency. | Regulated by SEBI, ensuring strict compliance with investor protection standards. |
Which Investment Should You Choose – Digital Gold or Gold Mutual Funds?
Also Read: How Can I Save Tax On Digital Gold?
Digital gold would be ideal for you, if
- You are looking to invest small amounts regularly and value the flexibility of buying fractions.
- You may need quick access to your investments.
- You want to be able to buy and sell it directly through digital wallets or apps.
Gold mutual funds would be ideal for you, if
- You are going to be invested for the long term, as the tax benefits and potential for compounding make gold mutual funds suitable for the long term.
- You want to boost returns and reduce risks as mutual funds offer diversification and are professionally managed.
- You value a structured investment, as Gold Mutual Funds offer greater transparency and security due to SEBI oversight.
Digital Gold vs Gold Mutual Funds – Which Is Better?
The choice between Digital Gold and Gold Mutual Funds depends on your financial goals, investment horizon, and risk tolerance.
Go For Digital Gold if you are looking for a flexible, liquid investment that doesn’t require heavy paperwork and allows you to start with small amounts. Digital Gold is suitable for short to medium-term goals.
Choose Gold Mutual Funds if you are a long-term investor, who is interested in regulatory safeguards and professional fund management. The structured approach, diversification, and professional management make Gold Mutual Funds a powerful wealth-building tool for patient investors.
You can also consider investing in both, where you allocate some funds to Digital Gold for short-term liquidity and Gold Mutual Funds for steady long-term growth.
Conclusion – Digital Gold vs Gold Mutual Funds: Which Is The Better Investment?
When it comes to choosing between Digital Gold and Gold Mutual Funds, it is important to understand your investment strategy, goals, and the benefits offered by both investment instruments. At the end of the day, gold remains a great addition to your investment portfolio, whether you prefer the ease of investing with a digital wallet or the structured approach of mutual funds.
If you wish to invest in Digital Gold or Mutual Funds, create a free account with Koshex today. Apart from investing, you can also track your net worth, EMIs, and your investments with Koshex. Become a smart investor and download our app today.
Frequently Asked Questions (FAQs)
Do I need a Demat account to invest in Digital Gold or Gold Mutual Funds?
No. You don’t need a Demat account for Digital Gold or Gold Mutual Funds. You will need a Demat account if you want to specifically invest in Gold ETFs.
Can I switch from Digital Gold to Gold Mutual Funds or vice versa?
No direct switch exists between Digital Gold and Gold Mutual Funds as they are separate financial products. You would need to sell one and purchase the other if you wish to switch.
Should I consider gold jewellery as an investment compared to Digital Gold or Gold Mutual Funds?
While gold jewellery holds emotional value, it incurs making charges, reducing investment returns. Digital Gold and Gold Mutual Funds are better suited for investments as they are most cost-effective and liquid, focusing solely on gold value without added costs.
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