By Mahendra Luniya
Gold has been a part of portfolios for a long time. It has proven to be a hedge against inflation and has been useful in difficult times. The world is now witnessing a change in the way investors invest in gold. The transition is happening to digital gold, a simpler and more transparent way to invest in gold. Digital gold products have alleviated many concerns related to gold, such as purity, additional fees, storage burden, etc. Let’s discuss the two main types of digital products.
1) Sovereign Gold Bonds (SGB): These are bonds each backed by one gram of pure gold. The RBI publishes them on behalf of the government. This is one of the most popular digital gold products as it offers 2.5% interest per annum.
2) Gold ETF: These are mutual fund
Stability and benefits of digital options
1) SGB: SGB is backed by the RBI which makes it one of the least risky investments and the 2.5% interest gives additional income which makes it more attractive as earning interest is not possible in any another form of investment in gold. This product even makes accumulation easier as one can easily purchase units from RBI (when they are issued) or from secondary. walk
These bonds also benefit from reductions: – Yes, a reduction on gold price
2) Gold ETF: These mutual funds invest in pure gold. Investors can buy and sell them on the exchanges where they are listed. Gold ETFs offer investors the opportunity to invest in very small amounts. The price of each unit is currently around Rs.50/-, making it easier and more efficient for investors to allocate money to gold. These funds are regulated by SEBI and thus add confidence to the investment option.
These ETFs are also not subject to 3% GST upon purchase. Although they incur annual spending fees which can go up to a maximum of 1% per year. It is worth comparing the expense ratios of different fund companies when purchasing gold ETFs.
Advantage of digital gold over physical gold
1) Purity: Concerns have existed for years regarding the purity of gold purchased in physical form, whereas in the case of digital gold, these concerns are completely alleviated.
2) GST: Investors are required to pay 3% GST when purchasing gold in physical form, thereby reducing potential returns. This is not the case for digital products.
3) Make expenses: A manufacturing fee is charged by jewelers when purchasing gold bars or jewelry. They can vary from 2 to 18% depending on the type of gold purchased. This money is saved in digital gold.
4) Storage: Most investors in India
5) Interest: The physical option requires an annual cash outflow, to keep the gold safe, whereas in products like SGB, investors receive an annual inflow of interest.
6) Price difference: While trading physical gold, one must have noticed two different prices, one for selling and one for buying. When selling gold, jewelers pay less to investors than what prevails in the market. This difference can range from 2 to 3%. This is not the case for digital gold where the buying and selling prices are the same.
So, to conclude, anyone who wants to buy gold purely from an investment perspective should always think about digital gold in order to enjoy most of the returns and enjoy the benefits that it comes with.
(Mahendra Luniya, Chairman of Vighnaharta Gold. The views expressed are those of the author. Please consult your financial advisor before investing.)