What is digital gold
Like the term suggests, ‘digital gold’ is an online product which enables you to hold gold virtually without owning a safe or bank locker. The seller keeps an equivalent weight of physical gold in a secure vault for each online buy. There are no minimum purchase limits, so you can buy for as less as Rs 100.
Where you can buy
Digital gold service providers like Gpay, Phonepe and broking firms like Paytm Money, HDFC Securities, Motilal Oswal, etc allow investors to buy gold in small amounts to incrementally build gold holdings. Buyers can sell or convert it to physical gold – like coins and ingots – whenever they want.
Digital gold providers
In India, gold is offered and stored in vaults mainly by three companies
a) Augmont Goldtech
b) MMTC-PAMP India, which is a joint venture between the government-owned Metals and Minerals Trading Corporation of India (MMTC) and Swiss company MKS PAMP
c) Digital Gold India, with its SafeGold brand.
Regulation on digital gold
Digital gold falls in a regulatory grey zone as the sector presently does not come under the purview of any financial sector regulator and is said to have a self-regulatory audit and diligence mechanism. ET has reported that the National Stock Exchange (NSE) instructed its members, including stockbrokers and wealth managers, to wind down the sale of digital gold on their platforms by September 10. This came after markets regulator Sebi flagged such sales as a breach of the Securities Contracts (Regulation) Rules (SCRR), 1957.
How Sebi order impacts investors
New-age fintech brokers such as Upstox, Groww, Paytm Money as well as traditional brokers such as HDFC Securities and Motilal Oswal etc will be affected by the new ruling. Brokers cannot now offer such unregulated products through their Sebi-registered entity or platform. These companies have been given time till September 10 to discontinue the product and inform customers.
Non-broking platforms such as PhonePe and Google Pay, which also offer digital gold to customers, are not likely to be affected by the new ruling. Customers already holding digital gold would also not be impacted.
Advantages of digital gold
Storage: You don’t have to pay bank locker rent, insurance cover or additional investment of Fixed Deposit (FD). Sellers say the digital gold is stored in an insured, secured vault at no extra cost.
Investment convenience: You can start with even Rs 100, and build up your holding over time. Investment in physical gold requires a lot of money.
Uniform price: The price of physical gold varies from city to city and jeweller to jeweller while digital gold prices are the same across the country. Physical gold carries high making charges; digital gold has just the 3% GST.
Purity: Sellers point out that digital gold investment is made in certified 24 Karat, 999.9 pure gold. Ascertaining purity of physical gold attracts additional cost.
Sell or Redeem: Digital gold can be sold or redeemed at the click of a button. You can sell the digital gold instantly and the value of your gold is instantly transferred into the bank account through a 24×7 market-linked rate. If you want to redeem your holding, the physical gold will be delivered at your doorstep.
Instant liquidity: You can sell digital gold instantly, while physical gold can only be exchanged or sold through a jeweller, or sometimes several jewellers.
Collateral: Digital gold can also be used as collateral for taking loans.