The value of gold appreciates as the price of gold increases, which then accumulates in the form of capital gain for the investor. India is the world’s second-largest consumer of gold. It also has one of the biggest gold markets. Although buying physical gold is the most common and well-liked way to invest, digital gold investment has recently gained popularity. Suppose you are planning to invest in digital gold.
Did You Know? Sovereign Gold Bonds are one of the most secure investments, backed by a guarantee from the government with a very low chance of default.
What is Digital Gold?
An alternative way to purchase physical gold is to purchase it digitally. Gold can be bought online, and an equivalent amount is kept as actual gold in a vault that is protected either by the government or through other certified authorities.
One can invest as low as ₹ 1 in digital gold. Customers have the option of selling all or a portion of their gold at any moment for the current market price. These golds are all of 24K and have official certification. It guarantees purity and eliminates the possibility of deception.
Ways to Invest in Digital Gold
There can be various ways to invest in digital gold. However, the following are the most common ways:-
Sovereign Gold Bonds
Under the Gold Monetization Scheme, the government introduced the Sovereign Gold Bond Scheme in November 2015. In accordance with the plan, the issues are opened for subscription in tranches by the RBI after consulting with the government of India. The terms and conditions for the scheme are periodically announced by RBI.
Following are the Salient features of Sovereign Gold Bond –
- The Reserve Bank of India will issue these bonds on behalf of the Indian government.
- The Bonds will have a base unit of 1 gram and be valued in multiples of gram(s) of gold.
- The bond will have an 8-year tenor with three exit options that can be utilized on interest payment dates in the fifth, sixth, and seventh years.
- One gram of gold will be the smallest investment that is allowed.
The maximum amount that may be subscribed for each fiscal year should be 4 Kg for an individual, 4 Kg for HUF, and 20 Kg for trusts and other similar entities. You will be required to get a self-declaration to that effect. The annual cap will comprise bonds purchased in various tranches during the year.
Exchanged Traded Funds
Exchange Traded Funds for gold are straightforward investment instruments that combine the simplicity of investing in gold with the flexibility of stock investments. Exchanged Traded Funds can be purchased and sold continually at market prices on the National Stock Exchange’s cash market, just like any other type of business stock.
What are Gold Exhange Traded Funds?
Gold Exchanged Traded Funds are passive investment vehicles that invest in gold bullion and are based on gold prices. The holdings of an Exchanged Traded Fund are completely transparent due to its direct gold pricing. Furthermore, Exchanged Traded Funds have significantly reduced costs compared to real gold investments because of their distinct structure and formation method.
Multi Commodity Exchange Gold Contracts
Through India’s renowned commodity exchange, the Multi Commodity Exchange, or Multi Commodity Exchange, gold contracts offer a way to trade the metal. In essence, Multi Commodity Exchange gold contracts are like derivative futures and options contracts that give investors the chance to speculate, hedge, and trade in gold for a brief period of time. These are best traded under supervision and are appropriate for more experienced investors.
What is the Largest Commodity Market in India?
The largest commodity exchange market in India and the sixth largest in the world is the Multi Commodity Exchange (MCX), as it is more frequently referred to. It is based in Mumbai and has a reputation for turning around the fortunes of individuals who transact business with it. The biggest traded commodity on this market is gold, and there are other bullion options available as well.
Best Ways for Buying Digital Gold in India
Companies which enable digital gold trading, provide a web platform or mobile application that supports buying and selling digital gold for investment for as low as ₹1. The underlying physical gold is kept in protected locker facilities and depositories managed by companies.
The following are some direct options for purchasing gold in digital form:
- When the RBI announces the series of Sovereign Gold Bond bond offers, Sovereign Gold Bonds may be purchased from them which will be stored like a digital asset. You will receive interest on the amount invested and capital appreciation as well.
- The mutual funds also provide gold in the form of exchanged traded funds. Various mutual fund companies provide gold exchanged traded funds.
- The Multi Commodity Exchange sells Multi Commodity Exchange gold contracts, which can be acquired straight from the market, and based on speculations, trade can be made to make money out of it.
- Only after the KYC verifications, Golds can be purchased from the various organizations which sell digital gold.
- Alternatively, Digital Gold can be Traded in the secondary market, or purchased from exchanges like the Bombay Stock Exchange and the National Stock Exchange, which provide a venue for buyers and sellers to conduct business and function as mediators.
Benefits of Digital Gold Investments
There are numerous benefits of storing digital gold. The most obvious are convenience to the buyer, ready market price, etc. The flowing are a few of the benefits of Digital Gold Investments explained in detail-
Digital gold may be purchased and sold anytime, anywhere, and in a matter of seconds. This convenience is not offered when purchasing physical gold, which must be done via trustworthy merchants that sell government-hallmarked jewelry. This provides the buyer the liquidity to sell the gold at any time and withdraw the investment. This convenience cannot be available in the case of physical gold which you will be required to be hold in a physical market.
Since various digital gold options are traded on stock markets, sovereign gold bonds and gold exchange-traded funds are extremely transparent investments. The government provides a sovereign guarantee for sovereign gold bonds, making investments in them risk-free or with little chance of default.
As only interest may be earned on the investment made in other bonds, such as corporate or government bonds, gold bonds have greater advantages. Gold bonds allow investors to benefit from both interest and rising gold prices. When gold is purchased digitally, the investor receives interest and an increase in the gold’s worth.
Since digital gold is exclusively exchanged in 24-carat form, which is the greatest purity for the metal, its purity is guaranteed when we purchase it. This is not the case when investing in physical gold because there is a chance for abnormalities due to dishonest activities like gold plating ornaments that make the gold appear to be pure when it is not.
Gold may not be an ideal investment for everyone and it may not be the best choice for investors looking for growth or income. But there are also other factors to consider when investing in gold, such as storage and insurance costs, which can eat into returns. It is always a good idea to diversify your portfolio and consider a range of investment options, including stocks, bonds, and real estate, in addition to any gold holdings.. Reinventing new avenues of gold investments like digital gold overcomes various limitations of physical gold investments. Digital Gold excites the new generation to invest in gold rather than taking more risk investing in shares in the portfolio.
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