Uncover Digital Gold From Virtual Mine For Outstanding Returns
Gold can never turn old as it refuses to lose its sheen over time. But purchasing the yellow metal and preserving it in its physical state can be termed outdated nowadays as investment in digital gold and silver is gaining momentum because of its seamless process and affordability. New-age investors are fancying the idea of parking their money in virtual vaults to keep their digital assets safe in a demat account.
The prized yellow metal is always considered the goose that lays the golden eggs, especially in times of exigencies. Let’s dig into the digital mine to find out what today’s finfluencers and investment wizards have to say about this current trend of online speculation.
Lawfully Yours
Is investing in digital gold and other exquisite stones legal in India? Yes, it is, if you are investing through registered platforms in authorized instruments, such as SGB (Sovereign Gold Bond scheme), Gold ETFs (Exchange-Traded Funds), and gold funds,” assures Vijay Laxmi A. Ambala aka V.L.A. Ambala, a Sebi-registered research analyst and founder of Stock Market Today, a financial advisory platform. “However, the Union Government is not in favour of ‘over-investment’ in gold or silver as the metals have to be imported, imposing an extra burden on the economy and restricting the flow of funds in businesses,” she reminds.
Concurring with the statement that confirms the legitimacy of putting money on digital gold and silver, Niyati Mavinkurve, digital content creator and co-founder of Youtube channel Let's Make You Rich (an endeavour to share the rules, principles and ideas to manage personal finance), however, alerts that in the absence of any administrative guidelines enforced by the central authority or any transparent market, prices of precious stones are determined by retailers”.
Investment in Digital Gold: Boons and Banes
Enumerating the advantages of digital investment over stashing physical elements, angel investor and serial entrepreneur Satyen Kothari includes “easy accessibility, lower transaction costs and the ability to buy in smaller denominations,” as a few favourable points. On the flip side, he mentions demerits like “market unrests, lack of physical possession and potential cybersecurity risks”.
Ambala cites “investment convenience, collateral, transparency, accessibility, fractional ownership, liquidity, security, low fees, diversification, no-storage hassles, plus global access and acceptance” as the pros of investing in digital gold and silver. While she exemplifies the cons with major factors like “want of physical custody, higher charges, digital assets being vulnerable to hacking and cyber threats, regulatory uncertainties and policies, limitations on instant liquidity in comparison to physical gold and silver as well as the fact that digital valuables cannot be used as an ornament”.
Cautioning against a slew of drawbacks of owning digital gold and silver, Mavinkurve too said: “If you want to convert it to physical gold, you need to pay both making and delivery charges. The second disadvantage is to shell out three per cent GST on the purchase value. In this case, you may get a better bargain by investing in Sovereign Gold Bonds.”
Tax Axe
Investment in digital gold is as taxable as in its physical counterpart, per the applicable slab. Tax wise, digital gold is treated no differently from investing in physical gold. “If one aims to acquire digital gold, one should be mindful of the tax levied in compliance with the income tax decree for gold purchases. Digital gold will attract 20.8 per cent tax in case of long-term capital gains, equivalent to physical and paper gold. While short-term gains (if gold is held for less than three years) get added to the total income and endure a tax load as per the slab rate,” Mavinkurve deconstructs in detail.
Timeless Treasure Trove
During festivals like Akshay Tritiya and Dhanteras, one wonders if the tradition of accumulating valuables, utensils and hoarding jewellery is being replaced by the trend of buying the yellow and white metal online. “While online buying tendency is conspicuously growing, the convention of purchasing ornaments still persists,” claims Kothari.
As an age-old practice, Indian households show more allegiance towards owning a real-estate property or staking a claim to lustrous yellow and sterling white metals. This is part of the popular cultural customs and a primary choice of investment. “In fact, on every occasion, domestic goddesses prefer possessing a piece of gold or silver. The popularity of new-age digital metal thus cannot replace the aristocratic class of pure tangible gold worn on one’s hands. Post pandemic, people visibly started accumulating the stunning precious metals all the more than any other asset,” espouses Ambala.
“It is true that people generally don't prefer investing on e-platforms. Hence, purchasing jewellery can never go out of fashion, I suppose,” opines Mavinkurve. “People still have trust issues when it comes to investing online, especially for trappings like gold, silver, pearls and diamonds, which get passed down over generations as a family heirloom unlike shares or bonds that are counted as pure investments. There is always a warm, heartfelt emotion attached to a casket of gold paraphernalia,” she argues.
Demat Format
Preserving digital assets in a demat account is usually believed to be secure, but there’s a rider here. “Investors should be cautious about cybersecurity and account safety,” warns Kothari. Ambala stresses: “That’s why it is always advised not to share one’s demat account credentials with anybody”.
Reasonable CapEx
Investing in digital gold can be “cheaper than stocking billions owing to nominal storage and lower transaction costs”, shares Kothari. Diving into the nitty-gritty of its economics, Ambala imparts that “the digital edition of gold is available at a price pegged below the market value. Additionally, you don’t require coughing up heavy storage charges. If you are investing in a Gold ETF or gold funds (like those holding physical gold bullion, gold futures contracts, or gold mining companies), only then you need to fork out fund management fees”.
Tap Apps for Suitable Sale
Finfluencer and digital content creator Himani Chaudhary avers that it is easier to sell digital valuables through apps than in open markets. “If you buy digital gold, you can immediately sell it via the app from which you bought it. Some examples are Google Pay, Paytm or DigiGold. Whereas, if you want to sell the physical gold, then your best bet is to resell it to the jeweller you got it from. Otherwise, you will have to take quotes from different sellers,” she elaborates on the process. While Ambala seconds her comment, Kothari admits that “although it is convenient to sell digital valuables through apps, but open markets may provide more diverse selling options”.
Useful Loans
It is common knowledge that banks lend loans against mortgaged gold. But is there any facility for customers to borrow loans against digital gold? Chaudhary sets the record straight by ratifying that “almost all NBFCs (Non-Banking Financial Company) and banks offer gold loans against digital gold, provided the borrower has relevant certificates at his disposal to produce as proofs.
In times of contingencies like weddings or medical emergencies, huge funds are required on an urgent basis. Is it possible for banks to provide immediate funds against the security of digital gold/silver? “Banks do accept digital silver and gold to dispense loans under the securities segment but only during their business hours. That’s the only catch,” Ambala notes.
Chaudhary corroborates that “one can definitely take a loan against digital gold or Sovereign Gold Bonds during an emergency or as a personal loan from the country’s popular banks or else from separate institutions like IIFL, IndiaGold, Muthoot Finance, etc. But before obtaining the loan, one must be careful enough to glance at the hefty interest rates slapped, as the same could hover around 12-13 per cent per annum. Loans against digital silver are not permitted by RBI for any other purpose except agriculture and allied services. Hence, if you are a farmer or a poultry business owner, you are eligible to procure the requisite sum of money”.
Metal Madness
Apart from gold and silver, metals like “platinum and palladium can be digitally invested in”, adds Kothari, while Ambala maintains that “investment is not possible but trading can be done”. Chaudhary also claims that “direct investment in other metals is unlikely. You can invest in platinum, palladium, zinc, etc. by buying the stocks of mining companies. Some ETFs of those stocks can be found on apps like Smallcase or you may invest in the US ETFs, which are directly linked with the metal price”.
Alternative Investment Avenues
It is becoming a growing fad nowadays to invest in digital assets like creative non-fungible tokens or precious stones. “Nonetheless, it’s important to be circumspective due to the volatile nature of such investments,” says Kothari.
Ambala concedes that “it’s spreading a little charm at the moment no doubt, but both NFTs and precious metals are unstable in nature, and the results could be hazardous as there are no strict regularities of supervision to manage the same”.
Whenever a dazzling new concept is introduced to the market, many people try to make money out of it. “Gemstones can fetch benefits if you know how rare the specimens are, the current scenario of the usage of gemstones and about the economic standing of the industry. Again, only an adept investor who has witnessed the ups and downs of the market over considerable years and has a first-hand experience about the field can partake in this type of trading wherein timing is essential,” observes Chaudhary.
Any Silver Lining To Spot?
An innovation of the National Spot Exchange is digital silver or e-silver that allows investors to put their money on smaller chunks and hold their purchases in a demat format. They are available for purchase on the national spot exchange trading platform, which can be accessed by members of NSEL or franchises. Does buying virtual gold or silver on NSEL prove to be more beneficial than at a stock exchange? “Buying digital gold or silver on NSEL may reap certain gains but then it’s immensely imperative to research and understand the risks associated with a specific investment platform,” views Kothari.
Despite regularising commodity trading and investing, NSEL is yet to drive more awareness among retail investors. “NSEL trading is more about B2B (business to business) until now,” intones Ambala.
“Purchasing virtual gold or silver on NSEL does not really prove to be more gainful than on the bourses,” utters Chaudhary. “Actually, NSEL is not known for providing a safe platform to invest in digital assets because of its previous crisis. It was famous earlier because of a handful of platforms, which were selling digital metals. Plus, the new apps have better UI (user interface) to boast and efficiently deliver an improved customer service package, rendering an enhanced investing experience,” she tries to convince.
A Hedge Against Market Fluxes?
Kothari thinks that some investment experts do consider gold in the form of bitcoin/cryptocurrency a safe-haven hedge against inflation but in the end, “it’s subject to market oscillations and investor sentiments”. Countering the point, Ambala adds: “Bitcoins and cryptocurrencies are highly unpredictable and cannot be compared with digital or physical gold and silver.” Chaudhary backs this opinion: “Bitcoin itself is neither safe nor fully legal in India. Plus, a tax load of 30% makes it a non-viable investment. There are other more sound and reliable options like Sovereign Gold Bonds to tap into.”
