Is digital gold better than physical gold? Everything you need to know


Is digital gold better than physical gold? Know this detail? | Vrid
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Your family is planning to buy some gold and its physical gold.

But you may have heard a lot about the benefits of digital gold in the recent past and want to know whether it is better than physical gold? Let’s discuss.

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Gold has always been seen as an auspicious ornament, and its history has proved that gold is a good asset to hedge against inflation. 

Although many believe that gold can no longer be hedged against inflation, today, we will only focus on comparing physical and digital gold.

Whenever a product is inefficient or has a lot of flaws, a new product arises to cover those flaws.

Physical gold has been in use for centuries. People buy gold to wear as jewellery or for investments. While we can’t have any alternative to gold being used as jewellery, we have many alternatives to physical gold for investments. 

You see, physical gold for investment has a lot of flaws. 

Flaws of physical gold

1. High minimum investment amount

The lowest amount of gold you can buy is 500 mg or 1 gram. That’s a minimum investment of around ₹3k. You can’t invest lower than that. 

2. Making charges & GST

When you buy physical gold, you pay making charges in the range of 1% to 20%. Some ornaments have higher making charges. You also have to pay a GST of 3%. 

3. Gold purity identification

Finding out the purity of the gold is tough. Many people aren’t aware of the difference between 24, 22 and 18-carat gold. They don’t check for hallmark markings. 

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But these days, with more regulations, it is getting easier to find out the purity of gold, but this was not always the case.

4. Gold storage and theft risk

After buying the physical gold, you need to store it securely and safeguard it from theft. Many people pay a fee and use a bank locker to store it.

5. Low ROI

Only while selling the gold do you realise that you won’t be getting the value of making charges and GST back. 

The value of the gold is determined by its purity, weight, and current market price. It doesn’t matter if you paid 15% extra for the design or on other charges. 

If you are an investor, you understand that this cost reduces your return on investment. So you need to keep the cost as low as possible. 

That’s why many people buy gold coins or bars for investment. But even for them, you pay GST, have minimal making charges, and have storage issues. 

6. No passive income

In real estate, you can earn rent. In stocks, you earn dividends, and in bonds, you can earn interest. 

But physical gold doesn’t provide you with any passive income. You can only gain if the value of gold increases. 

Here enters a new product – Digital gold. That tries to cover as many flaws of physical gold as possible. Does it manage to cover all flaws? Let’s find out. 

What is digital gold? 

As the name suggests, everything goes digital here. You buy gold digitally through a platform. They store your gold in a secure vault. Whenever you want, you can sell the gold digitally or ask for the delivery of the gold. 

Also, many well-known jewellery stores have partnered with digital gold-providing firms. Together they offer you the option to convert your digital gold into an ornament at their store. 

There are currently three firms in India that provide digital gold. SafegoldAugmont and MMTC – PAMP. You can buy digital gold directly from them or through their partners like Gpay, Phonepe and jewellery stores. 

Now, let’s talk about the physical gold’s flaws that digital gold has managed to cover.

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Benefits of digital gold

1. Low minimum investment amount

You can invest as low as ₹1 in digital gold as you can buy a fraction of gold. 

2. No making charges

While buying digital gold, you don’t have to pay any making charges. This reduces your cost. But remember, while asking for delivery, there are some charges to be paid. Will discuss that in some time.

3. Gold purity

When you are buying digital gold, you are buying 24-carat gold. You don’t have to worry about purity. 

4. No storage and theft risk

As you don’t have physical gold, you don’t have to worry about the storage and theft risk. The companies that provide digital gold have partnered with multiple partners to store your gold securely and have insurance on them. 

5. Liquidity

You can buy and sell digital gold at any time. As you can buy gold for as low as ₹1, you can also start a weekly or monthly SIP. 

Now, all these benefits are too good. But physical gold for investment has too many flaws. And even digital gold couldn’t solve them all. Let’s discuss these flaws. 

Disadvantages of digital gold

1. 3% GST

Even while buying digital gold, you pay 3% GST. If you are purchasing digital gold for ₹100, you have to pay ₹103.

2. Short holding period

You can’t hold your digital gold beyond 5 years. That’s the average time limit the digital gold companies provide. At the end of 5 years, you either sell your digital gold or ask for physical delivery. They will deliver the gold to your house.   

3. Charges

It is true that while buying digital gold you don’t have to pay any making charge. But as these companies store your digital gold in a secure vault and insure them, they incur a lot of costs. 

And these companies collect these charges from you through the spread. Spread is the difference between the buy and sell price. You can check this difference on their site or with their partners. Generally, this spread is in the range of 3-6%. And that is huge. 

Also, when you ask for delivery, you pay for making and delivery charges.

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4. Limited investment

Most platforms would only allow you to invest in digital gold up to ₹2 lakhs. Beyond that, you might have to go through some more paper works.

5. No passive income

Similar to physical gold, there is no way to earn passive income through your digital gold. 

6. No regulation

Currently, digital gold companies are not regulated by SEBI or RBI. These companies do promise that they have some trustee to oversee their management, etc. but you can’t be too sure of it. 

SEBI is planning to bring forward some regulations in the digital gold space as more consumers are entering it. 

Is digital gold a better alternative to physical gold?

In some aspects, yes. For investments in gold, it is definitely a better step up from physical gold.

But some more gold investment products are available in the market, like Sovereign Gold Bonds (SGB), gold ETFs, and gold mutual funds. SGB is considered the best for gold investment. And the good to better investment range looks like this –  

SGB > Gold ETF > Gold Mutual Fund > Digital Gold > Physical Gold

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Still Curious?

If you are like us, who likes to analyse a little more or check out content in different formats, well you are in luck. Below you can find some suitable content we found.

Mint – Digital Gold – All You Need to Know

Scripbox – How to invest in Digital Gold Online? Why should you invest in Digital Gold?

Labour Law Advisor – Calculated the Returns | Gold vs Digital Gold vs SGB vs ETF

Note: We don’t have any affiliation with them. We are sharing links only for educational purposes. The opinions expressed by them belong solely to them and do not reflect the views of Vrid.

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DISCLAIMER: This newsletter is strictly educational and is not an investment advice or a proposal to buy or sell any assets. Please be careful and do your own research.

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