Read on to know a few key differences between Digital Gold, Sovereign Gold bond and Gold ETF.
For the purpose of diversification across assets, most financial planners suggest investing in the yellow metal up to 10 per cent of one’s investment portfolio. But buying physical gold in the form of jewelry or gold coins comes with its own share of concerns – from storage to high making charges, etc. Owning gold in paper form through digital means has seen an increase and digital gold is fast becoming an easier, simpler and cost effective way to participate in the potential of gold as an asset class.
Buying digital gold simply means you spend money but do not get physical gold in hand instead you get a certificate or a document showing the amount of gold purchased by you or an online statement showing the holdings.
The three most popular ways to own gold digitally are buying Sovereign Gold Bonds (SGBs), Gold Exchange Traded Funds (ETFs) and gold units on websites or apps. “All three products — Digital Gold, Sovereign Gold Bond and Gold ETF – are digital ways of investing in gold,” says Renisha Chainani, Head of Research, Augmont – Gold for All.
But, before putting your money in any one of them, make sure you know some of the basic differences between them.
According to Renisha, a few key differences between Digital Gold, Sovereign Gold bond, Gold ETF are:
- Gold ETF and SGB are exchange-traded, so there are limited hours of investing from 9 am to 3:30 pm, while Digital Gold can be bought and sold 24*7. So Liquidity is the major differentiator.
- The Lock-in period for SGB is 5 years and there is a hefty transaction cost to be paid if sold before maturity. While for Digital Gold, there is no such lock-in, it could be sold the very next day.
- With digital gold, you buy the actual value of gold which is stored in physical form in a vault. Digital gold comes with insurance of the full value invested, unlike SGBs.
- Digital gold does not attract any cost apart from a one-time levy of 3% GST. Gold ETFs incur recurring annual charges of around 0.5-1%. You don’t need to hold a Demat account to buy digital gold, like in the case of gold ETFs and SGB.
Sovereign Gold bonds are issued by the government and the buying and redemption price is linked to the market price. SG bonds mature after 8 years, however, there is a premature exit allowed after 5 years and they are traded on the stock exchanges. One may also buy gold bonds, which have been issued earlier, from stock exchanges. The minimum investment in SGB is one gram while the maximum is 4 kg of gold in one financial year.
Gold ETF is almost similar to mutual fund schemes where the underlying asset is the gold as similar to stocks in equity mutual funds and they represent paper-gold as the investment is held in your Demat account.
Some of the Gold ETFs available on NSE are Nippon India ETF Gold BeES, Axis Gold ETF, HDFC Gold Exchange Traded Fund, ICICI Prudential Gold Exchange Traded Fund, Kotak Gold Exchange-Traded Fund, Quantum Gold Fund among others.
Unlike SGB and Gold ETF, digital gold through e-wallets or apps is much more affordable. When it comes to affordability, you can start investing in digital gold with as low as Re 1. Many investors follow the SIP approach in accumulating gold in small quantities on a regular basis for the long term goals. “Digital gold is super affordable. The best part about buying gold online is that you can purchase it with a minimum of Re. 1 or 0.0005 gm, which is definitely not possible if you buy it physically. It also eliminates the cost of making charges which you have to pay while designing any form of jewellery,” adds Renisha.
So, where do you go to buy gold digitally? “In India, there are basically three licensed Digital Gold Players: Augmont-Gold For All, MMTC-PAMP, SafeGold. Once you invest in digital gold, these trading companies purchase an equivalent amount of physical gold and store it under your name in secured vaults. However, there are many E-wallets, brokers and fintech companies’ platforms that have tie-ups with any of these three licensed Digi Gold players for the convenience of their customers. Various platforms include Upstox, KredX, Reliance securities, G-pay, Paytm, Phonepe, AmazonPay, etc.,” says Renisha.
When you are on different digital gold platforms, there could be price differences that you may witness. “There is a very minor difference in Gold price on different platforms as the price is inclusive of brokerage, storage and insurance,” informs Renisha. Also, keep an eye on the buy and sell price and not just on the buying price.
