Money-Wise: Planning to invest in gold? Here's why you should ditch physical and go for digital

In India, gold is favoured over debt and equity options in terms of investment by many investors. It attracts even more attention during the Diwali celebrations because it is considered auspicious to invest in precious metals.

In just a year, gold has given a 30.6 per cent return and 56.8 per cent return in two years, making it a great investment strategy. However, gold has historically also gone through stagnation and multiple price corrections, hence, its good performance does not ensure a promising return in future.

But still, if you are planning to invest in gold, the investment can always be diversified and one can move beyond the idea of purchasing physical gold. Some of the new and lucrative gold investment options are Digital Gold, Gold ETFs, and Sovereign Gold Bonds (SGBs).

Physical gold vs digital gold

Investment in physical gold is a traditional way of purchasing gold assets like gold bars, gold jewellery and gold coins. Buying physical gold requires payment of a lump sum amount of money in one go and also has additional costs involved in its insurance and storage.

Meanwhile, digital gold can be purchased through online platforms and people can buy it electronically and even in fractional amounts, which costs comparatively less.

The purchase and sale of digital gold is convenient and it involves accessibility, liquidity and seamless transactions.

Types of digital gold investment instruments

Investors can consider different investment options when purchasing gold through a digital route.

Investors can purchase digital gold through various apps and in small denominations, which start from 1 gram onwards. One can convert digital gold into physical gold whenever they want.

Investors will have to pay 3 per cent GST upfront in digital gold and it involves separate charges for insurance, storage and delivery. The tax levied is 12.5 per cent if sold after two years.

Gold Exchange Traded Funds trade on the stock exchange just like any other share and their primary underlying assets include stocks of gold refining or mining and physical gold.

Watch:Dhanteras: The Cultural Significance of Gold, Prosperity, Purity, and Security

Investors need to have a Demat (Dematerialised) account to purchase Gold ETFs. One unit of ETF is equivalent to 1 gram of gold and it also includes 3 per cent GST upfront. The tax levied is 12.5 per cent if sold after two years.

Different asset management companies(AMCs) manage gold mutual funds. The companies have a fund-of-fund structure and Gold ETFs are their primary investment.

The Reserve Bank of India (RBI) periodically releases the sovereign gold bonds, which can be purchased through public and private sector banks. The returns are decided on the price of gold, however, physical gold is not their underlying asset.

Here's why Digital gold investments are the preferred option

• Digital Gold offer better returns and the entire amount is allocated to 24K gold.
• Digital gold investments have the option of leasing gold to trusted jewellers which gives an additional 3 to 4 per cent return.
• The investors of digital gold benefit from indexation which also reduces the tax burden on long-term capital gain.
• Investors can transact digital gold 24/7 and have more flexibility in comparison to Gold ETFs. Meanwhile, Sovereign Gold Bonds involves 5 years of restriction on its redemption.
• Investment in digital Gold can be made with a minimum investment of as low as Rs. 10 which makes it lucrative.

This week, the price of gold had hit an all-time high of Rs 82,000 per 10 grams in the wake of the intense purchasing during Dhanteras and Diwali, the festival of lights. Gold has remained a solid hedge against inflation despite its high prices and it is expected to remain strong, so the purchase of gold can prove beneficial for those aiming to diversify their portfolio.