Gold remains an evergreen asset in India because of its steadfast ability to withstand market volatility. Since gold prices appreciate even in the face of recession and unforeseen events such as a pandemic, investing in gold is the most preferred option for many investors.
Earlier, people purchased gold in the form of jewelry, coins, and bars. But today, more and more buyers are ready to buy digital gold, a format that invests in gold in a convenient, secure, affordable, and accessible process.
In this blog, we will review the challenges and advantages of buying digital gold and how Koshex can help you in this process.
What is digital gold?
Digital gold enables consumers to invest in gold instruments online. It is a convenient, cost-effective, and secure mode of buying gold.
Digital gold can be purchased in several forms such as Gold Exchange-Traded Funds (Gold ETFs), Sovereign Gold Bonds (SGBs), and Gold Mutual Funds (Gold MFs).
How to invest in digital gold?
Digital gold is accessible in several formats and through various avenues. These are some popular options available in the market today.
Online investment platforms
Today, it has become extremely easy to invest in digital gold. Online investment platforms enable you to buy and sell digital gold of 24 karats for as little as INR 100.
You will need to create an account on the platform, complete the Know Your Customer (KYC) process, and then start investing. Gold providers such as MMTC ensure that the underlying physical gold is securely stored and managed via insured locker facilities.
Sovereign gold bonds (SGBs)
You can purchase Sovereign Gold Bonds (SGBs), which are issued by the Reserve Bank of India (RBI), online via your Demat account.
The RBI periodically announces a series of sovereign gold bonds, and investors must purchase them within a predetermined time frame. Investors can purchase as little as 1 gram. You can also buy sovereign gold bonds on the secondary market, usually at a slightly higher price.
Gold exchange-traded funds (ETFs)
As the name suggests, Gold Exchange Traded Funds (ETFs) are traded on the stock exchange like shares. Their price fluctuates in real time like a stock and does not remain static, as is the case with a mutual fund.
Regulated by the Securities and Exchange Board of India (SEBI), every ETF unit is secured with an equivalent quantity of physical gold.
Gold mutual funds
This commodity-based mutual fund primarily invests in reserves directly or indirectly via Gold ETFs, gold mining businesses, syndicates that produce or distribute gold, and gold bullion.
You can buy gold mutual funds directly from an asset management company website or online trading platforms.
Trade on online platforms
Investment platforms such as Koshex also allow investors to buy and sell gold with ease. These platforms partner with gold providers such as MMTC-PAMP (Minerals and Metals Trading Corporation) India, which securely stores the gold.
MCX Gold Contracts
India’s recognized Multi Commodity Exchange ( MCX), enables investors to trade in gold, which is a commodity, via derivative contracts.
These contracts aim to predict how gold will perform in the future, and earn a profit if their prediction is correct.
However, this form of trading is best suited for investors who understand the market, and are in a position to predict how it will perform on a future date.
8 advantages of investing in digital gold
Here’s how buying digital gold can be beneficial:
Invest in small amounts
Buying physical gold can be an expensive proposition. However, digital gold opens up opportunities for investors to grow their gold holdings in small amounts. One can start investing in digital gold with as little as INR 100.
Assured purity of digital gold
Mostly, buyers look for gold with a superior purity level. When we walk into a physical store to purchase gold jewelry, at times, there is no way to know if the purity of the gold is assured.
However, digital gold is traded at 24-karat, as designated by the Reserve Bank of India (RBI).
Buying physical gold comes with the additional responsibility and expense of arranging for a secure place to store it.
Digital gold, however, is stored in a Demat account, and the transaction is secure. It also reduces the potential for any physical theft.
Today’s investors are looking for assets with a higher degree of liquidity. If you own physical gold, you need to visit a store (or multiple stores, to get the best price) to sell the gold.
On the other hand, digital gold can be bought and sold with a few clicks. The funds reflected in your bank account almost immediately.
No maintenance required
If you own this asset in the form of gold jewelry, then you need to take care of it and protect it from wear and tear. Such challenges are eliminated when you buy gold, digitally.
Transparent trading process
Digital gold transactions are transparent. Some forms of digital gold, such as Gold exchange-traded funds, are traded on the stock exchange, which enhances transparency.
Secondly, Sovereign Gold Bonds, which the government issues, come with a sovereign guarantee, making them risk-free and an extremely safe investment.
No making and storage charge
The process of making gold jewelry involves making charges, which can go up to 8%. Secondly, jewelry, coins, and bars need to be stored in a bank, which comes with storage charges.
These charges are eliminated when one invests in digital gold.
Earn interest and grow a passive income
Investment in digital gold enables investors to earn interest, unlike physical gold. Sometimes investors get a fixed interest rate, in the case of sovereign gold bonds. In other cases, it depends upon the appreciation of gold value in the market.
Does buying digital gold come with any risks?
As with any investment, investing in digital gold can prove risky. The regulatory framework for digital gold is still evolving. Hence, investors should buy digital gold from credible platforms.
Ensure the platform has partnered with a recognized provider such as MMTC, which trades in 24-karat gold with 99.5% purity. Make sure that all the charges, such as GST, are also declared upfront.
The concept of digital gold is an emerging phenomenon, and the ecosystem where gold is being bought and sold digitally will continue to grow and evolve in the coming years.
It is advisable to start investing in gold and slowly increase your digital gold holdings to around 20% of your portfolio.
Since gold is considered a low-risk investment, buying digital gold helps mitigate the additional risk incurred by investments in more volatile investments such as stocks.
The long-term market price is expected to continue to appreciate. Hence, it is advisable to stay invested in digital gold for a long period.
Start your journey by opening an account with a safe and secure online investment platform like Koshex, which guides you on how to invest based on your risk profile, while offering a secure, transparent experience to its investor community.