The Buyt Desk
Gold is very auspicious for Indians and a go-to investment. There are various ways to invest in gold. Gold can be either brought in physical form or in digital form.
Indians mark every auspicious occasion and celebrations with the purchase of gold, be it festivals, weddings, house warming, birthdays, anniversaries or birth of a child. Gold is consumed in many forms, from gold jewelry to gold articles to gold coins to biscuits. Nowadays even gold in digital forms is gaining popularity in India. Before investing in gold, let us understand what physical and digital gold mean and its pros and cons.
What is Physical Gold?
Gold, the yellow metal always has demand and value. Over decades its demand is only increasing in spite of its inflated rates. Indians still consider gold or land as the best investment option. Gold is mostly brought for use as jewelry or household articles and few buy gold in form of coins and biscuits for gifting purpose. This form of buying gold is physical gold where the gold is physically with the buyer.
Physical gold can be purchased from a gold merchant/jeweler or a bank (only coins) directly. Universally physical gold is accepted in exchange of cash making it highly liquid. The price of physical gold varies from jeweller to jeweller and region to region. The resale value of gold articles and jewels are lesser compared to gold coins and bars.
What is digital gold?
Digital gold is an alternate way to buy gold. Digital gold is a mechanism where one can buy a digital form of pure gold from a seller. The seller keeps the physical gold in secured vaults on behalf of buyers. The buyer gets the invoice for the gold he has brought and the same is reflected in vault balance at the service provider. The buyer can continue keeping in the vault or take possession of the gold in form of coins or jewels or sell it anytime at live market rates. Digital gold investment is regarded as a cost effective and effective way of building assets. The purchase and sale of digital gold happens online at market prices, thus it is a transparent transaction. Here any amount of gold with 24k purity can be brought, even gold of Rs.100 can be brought.
Ways to buy digital gold
Digital gold in India can be bought from multiple websites and apps. Digital gold is sold only by three entities – Produits Artistiques Métaux Précieux, Switzerland (PAMP), Augmont Limited, a joint venture between state-owned Metals and Minerals Trading Corporation of India (MMTC) and SafeGold brand of Digital Gold India Pvt. Ltd. Service providers like Amazon Pay , PhonePe , Google Pay, and PayTM, have tied up with these three entities to sell digital gold via their platforms. Now even jewelers like Kalyan Jewellers, Senco and Tanishq are also offering digital gold through similar tie-ups. Investors can open digital gold accounts either directly with the refiner or with the partner online platforms. One can buy the quantity of gold as per weight (grams) or value of gold (Rupees) after completing the KYC process.
Taxation on both physical and digital gold
Capital gains from investment in physical and digital gold are taxable as per the period of holding the investment. The gains are taxed as per the income tax slab when the gold is sold before 36 months from date of purchase. The long term capital gains tax (LTCG) of 20% with indexation benefit is levied on the gains of gold sold after 36 months from date of purchase. Moreover, there is a cess of 4% and surcharge if applicable.
Pros and cons of Physical Gold
Buying physical gold has its own pros and cons alongside being the most desired precious metal. People still buy more physical gold, so let us look into pros and cons of physical gold.
Pros
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Physical gold doesn’t depreciate over time so it is a good asset which is wearable.
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Physical gold has resale value. And can be easily sold to authorized institutes or known people including family members and relatives and can be reclaimed once you have enough money.
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Physical gold is regarded as an inflation-proof investment. And hence even a good choice for gifting.
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Physical gold’s intrinsic value as an asset is not lost. History shows us that gold can be easily sold during a crisis.
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Quick loans can be availed by pledging the physical gold.
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Physical gold can be passed onto the next generations as an asset and wearable.
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Asset for many generations to come.
Cons
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Physical gold has a higher cost of carrying and storing. Safes charge hefty fees.
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Physical gold has high making charges more than 20% most of the time.
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Ornaments and articles are of at least 2 grams and investment will be high. No physical gold is available below 4-5 thousand.
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Physical gold always has a risk of theft.
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Purity cannot be guaranteed if not certified. Ornaments are made using gold of varied purity.
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A wealth tax is levied on physical gold buyers on purchase of Rs.30,00,000/- and above.
Pros and cons of Digital Gold
People are aware of digital gold and want to know more about it. There are also people who without understanding pros and cons have invested in digital gold. Let us understand the pros and cons of digital gold.
Pros
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Small amounts of investment can be done into digital gold. Even gold of value Rs.100 can be brought. Digital gold is good for small investors.
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Only gold with purity 24 karat gold can be bought on online platforms. Purity is guaranteed.
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Redemption of digital gold is quick and easily as it can be redeemed as physical gold coins or bars.
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Digital gold can be easily cashed out online and hassle free.
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Digital gold can easily be sold in small units and not empty the safe.
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Digital gold is also considered as collateral for loans.
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Digital gold is insured and safely deposited in a vault.
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Digital gold has zero risk of robbery.
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Digital gold can be tracked online for better investment insight.
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Digital gold has real-time gold rates making it easier for investors to make purchases or sales based on price movements.
Cons
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Digital gold cannot be worn.
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Safety of digital gold is charged after 5 years. A vault fee is collected from the investor.
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There is a limit on the number of years gold can be held in digital form.
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Digital gold cannot be bartered but always sold.
Summing up
After going through pros and cons of both digital gold and physical gold you might be having a good insight. The preference of investment solely depends on the investor’s purpose. Digital gold is a good choice if the sole purpose of buying gold is as an investment for a short duration. Physical gold is a good choice if the purpose is consumption and asset building for next generations. An investment portfolio should always be diverse and with around 10%-30% of gold either digital or physical is considered a healthy investment choice as it gives hedges against inflation risk, currency risk and volatility.
