Gold is a preferred investment option even today for many Indians. It is hailed as a hedge against inflation and helps diversify one’s investment portfolio.
With the festive season around the corner, gold sales are likely to see an upsurge. Gold is a preferred investment option even today for many Indians. It is hailed as a hedge against inflation and helps diversify one’s investment portfolio.
However, the traditional method of buying physical gold has its downsides, including concerns about purity, security, and higher making charges. Digital gold, on the other hand, is a more convenient and secure way to invest in this precious metal.
Here we will take a look at some of the benefits of digital gold and what all you must keep into consideration.
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Investments
Digital gold has emerged as a game-changer in the investment landscape, offering a hassle-free alternative to physical gold. It eliminates concerns about authenticity, theft, and storage. Moreover, digital gold provides investors with the flexibility to tailor their investments to their goals and preferences. Let’s delve into the popular digital gold options available and how they work.
Adhil Shetty, CEO, Bankbazaar.com, says, “If you plan to invest in gold ahead of the festive season, digital gold appears most sensible. You can choose from Sovereign Gold Bonds (SGBs), gold ETFs and mutual funds for market-linked returns. Besides appreciation, SGBs also offer annual interest to investors. Investors can earn a fixed rate of 2.50 per cent per annum, semi-annually, on the nominal value. Also, you can take loans using these bonds as collateral.”
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Gold ETFs
Gold ETFs, traded on stock exchanges, provide a cost-effective means to invest in gold. These funds offer the ability to purchase gold in small fractions, making them highly accessible. Gold ETFs are backed by physical gold with high purity levels and can be easily bought or sold in the stock market. They are stored in a DEMAT account, enhancing security. Additionally, gold ETF transactions are free from wealth tax, security transaction tax, and other levies, making them a tax-efficient choice.
Gold Mutual Funds
Gold mutual funds, while not directly invested in gold, offer exposure to gold mining companies and gold ETFs. Unlike gold ETFs, they do not require a DEMAT account or trading account. Investors can start with amounts as low as Rs 1000 and invest systematically through SIPs. However, they may incur an expense ratio and exit load if redeemed before one year. For those looking to invest in gold incrementally, gold mutual funds can be a suitable option.
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Sovereign Gold Bonds (SGBs)
SGBs, backed by the Indian government, provide a secure avenue for gold investment. They can be bought during primary issuance from the RBI or in the secondary market after listing. SGBs come with an attractive feature—an annual interest rate of 2.5%. This interest income, along with capital appreciation, makes them a lucrative choice. Importantly, there is no capital gains tax on SGBs upon maturity. These bonds can also be held in a DEMAT account, ensuring safety.
How to Invest in Digital Gold
Investing in digital gold, whether through Gold ETFs, Gold mutual funds, or SGBs, requires some steps:
Open a DEMAT Account: For Gold ETFs and SGBs, you need to open a DEMAT account, facilitating electronic storage and trading of these assets.
Stock Market or Mutual Fund Company: Gold ETFs and SGBs can be bought from the stock market platform or at the time of primary issuance. For gold mutual funds, visit the nearest branch of the mutual fund company or use their online facilities.
Shetty further explains, “Without owning physical gold, you can enjoy the benefit of gold investment where the value of the papers is in sync with the physical gold. When you wish to sell them, an equal amount of money gets credited to your bank account. You’re also protected against purity and safety risks associated with physical gold.”
When choosing the right digital gold investment, focus on factors like liquidity, tax implications for short and long-term gains, minimum and maximum investment amounts, loan facilities against these investments, and ease of investment. Remember to align your gold investments with your financial goals and avoid overextending.
Finally, digital gold offers a modern and convenient way to invest in this timeless asset. By eliminating the drawbacks associated with physical gold, it provides a secure and flexible avenue for investors. Whether you choose Gold ETFs, Gold mutual funds, or SGBs, digital gold empowers you to harness the potential of gold while aligning your investments with your financial objectives.
