4 Ways To Invest In Digital Gold

Forbes.com:

Digital gold is emerging as a choice for those who want to invest in gold solely for the purpose of investing. Investors who want to park their funds for a short-term too are getting attracted to buying digital gold as it is relatively stable and can provide a passive income.

Here are some ways in which digital gold can be bought.

1) Sovereign Gold Bonds (SGBs)

Sovereign gold bonds are issued by the Reserve Bank of India (RBI) on behalf of the government.

• These bonds were introduced under the Gold Monetization Scheme in 2015. These bonds are issued in many tranches throughout the year by the RBI.

• Each bond represents 1 gram of gold and thus allows the investors an option to invest in gold digitally.

• In addition to the changes in gold rates, these bonds have an attractive interest rate of 2.5% per annum, which is paid semi-annually by the RBI adding to the yield.

• Being backed by the government, SGBs are considered very stable.

• These bonds have a time duration of eight years and the RBI also provides a redemption option after the fifth year.

• The bonds are also tradable on stock exchanges, giving a liquidity option.

• There is a limitation on individuals of 4 kg and 20 kg on Hindu Undivided Family (HUFs) per year.

The benefits of investing in SGBs include:

• The bond can be kept in demat form hence eliminating the risk of losing the bond.

• The risk of storing physical gold is eliminated and the investors also earn an interest on the gold which would have been lying in lockers, if kept in the physical form.

• If the bond is held till maturity i.e. for eight years then the investor is free from the liability of capital gains tax. 

• The investors can easily take loans on these SGBs. Even after taking a loan the investor will get the interest on SGBs, hence, reducing the effective rate of loan.

• One additional feature of SGB is that these bonds can be gifted or transferred.

The RBI keeps launching new tranches throughout the year, but if one wishes to buy SGBs, they should consider buying it from the stock exchanges as the prices tend to trade at a discount of 3% to 5% as a result of low liquidity in the segment.

Also, while buying from the secondary market i.e., the stock exchanges, investors should consider buying units of the tranche which was issued at a higher rate and is now trading at a discount, as the interest is calculated on the issue price. Hence, effectively increasing the interest rate for investors.

2) Gold ETFs

Exchange traded funds is basically a mutual fund whose units can be bought from stock exchanges. There are various asset management companies (AMCs) that have their own gold ETFs like SBI Gold ETF, AXIS Gold ETF, Nippon Gold ETF, among others.

• ETFs are a way to invest in gold in small quantities.

• These are optimum for investors who want to buy gold in small quantities and keep it in a demat format. 

• These AMCs invest the money in 99.5 purity gold making it a safe investment.

• This is a good option for investors like students who have small capital and wish to have an allocation in gold.

Benefits of investing in gold ETFs

• The purity of gold is assured at 99.5% purity

• The mutual fund industry is regulated by SEBI, hence reducing the safety and security worries.

• The expense ratio of these funds is very low like the Nippon Gold ETF has an expense ratio of only 0.39%, making it an affordable buy.

• Investors can easily take a loan against these ETFs from various financial institutions.

3) Multi Commodity Exchange (MCX)

Multi commodity exchange is one of the ways to trade in Gold.

• MCX offers a platform to trade in various commodities, like gold, silver, copper, etc. Traders use this platform to trade in commodities through futures and options.

• Traders also use the platform to hedge their position in various commodities including gold.

• The metal can be traded under various quantitative options such as 1 gram, 8 grams, 100 grams and 1 kg units.

4) Digital Gold Wallets

In the recent past, many companies have introduced gold wallets. These companies include the likes of PhonePe, GPay, Paytm, among others, who provide their users this facility.

• With these products, one can download the mobile applications and can invest as low as INR 1 in the gold wallet through various online fund transfer facilities. This is similar to buying INR 1 gold.

• These companies store this gold in the lockers of MMTC-PAMP.

• The purity of gold is predefined and the gold can be sold and bought any time and from anywhere through these mobile applications.

What Makes Investing In Digital Gold Attractive?

• Purity: Before hallmarking was made compulsory, the purity of gold was a major concern with buying physical gold, which, as we saw, is completely eliminated in the digital products.

• Security and locker charges: Keeping physical gold is a very risky business and storing it in bank lockers adds an additional burden in the form of locker rents, which is not the case in digital gold as it can’t be stolen from our demat accounts and additionally is tradable.

• Passive income: Earning an income from physical gold is not possible, instead it requires an outflow of money if kept in lockers, but in SGBs the investors enjoy a passive income in the form of interest.

• Making charges: Investors keeping physical gold in jewelry form have to pay at least 8% making charges in addition to the price of gold while buying it, which increases the buying cost leading to reducing their returns, thus investors now tent to buy digital gold which is free from any form of making charges.

• Increased awareness: This growing technology has increased the availability of information among general masses. With growing information and knowledge, the investors have now become aware about various forms of investing. Like investors have now started understanding the difference between endowment policies and life insurance, and are now segregating investment from insurance products.
  
  Also with growing efficiency in our capital markets we have seen the transformation from physical shares to demat, combating all the difficulties in investing, similar is the case with gold. Investors have started understanding the difference between investment in gold and buying jewelry for various ornamental uses. 

• Lower rates on FDs: There was a time when funds kept in FDs would double in five years, but as the rates have slipped way below the inflation levels (i.e. yielding negative real returns), people have started shifting to better safe asset classes.

READ MORE AT Forbes.com