What is digital gold?
It is a tool that allows you to invest in pure gold in digital form. The seller stores the same amount of physical gold in secure safes. After making the payment, the buyer gets an invoice and the said quantity shows up under Vault Balance in your account with the service provider. Customers can sell this gold at any time in rupees or grams at the live market rate. They can also take possession of gold in physical form like coins or jewellery, adjusted for any making charges and packaging costs. There is no upper limit to buy digital gold. However, the maximum limit for buying gold in a day is Rs 2 lakh.
Who is giving Digital Gold?
In India, digital gold is mainly sold by three entities – MMTC PAMP, Augmont Goldtech and Digital Gold India (SafeGold). These firms have tied up with service providers like PayTM, Google Pay, Amazon Pay and PhonePe to sell digital gold through their platform. Recently, jewelers like Tanishq, Senco and Kalyan Jewelers have also started offering digital gold through similar tie-ups. Customers can open a digital gold account with the refiner directly or through any of the partner platforms.
How is it better than buying physical gold?
It essentially provides the facility of holding gold without any safe or bank locker. So you don’t have to worry about storage and security. Digital Gold is invested in certified 24 karat, 999.9 pure gold held in the custodian’s vault. Physical gold often faces issues of impurities. Also, buying physical gold incurs higher making charges. Digital Gold account comes at no cost other than 3% GST. The price of digital gold is the same across India, so you can buy and sell gold online at completely transparent, live market rates. You can sell your gold digitally back on the platform whenever you want without facing any deduction. Most platforms offer the benefit of doorstep delivery of physical gold at a small cost, if redeemed as such. In addition, digital gold allows for purchases in much smaller denominations than actual physical gold.
How is it different from paper gold?
Most of the above benefits of digital gold are also availed by other forms of non-physical gold such as gold ETFs and gold funds. Where digital gold differs from other options is in the price. Apart from a one-time levy of 3% GST, there is no charge on digital gold. Gold ETFs and gold funds both attract a recurring annual fee of around 0.5-1%. You do not need to have a demat account to buy digital gold, like in the case of gold ETFs. Also, digital gold can be bought in very small amounts at a time. Most of the platforms as well as jewelers like Tanishq and Kalyan Jewellers, allow buyers to buy digital gold for less than Rs 100. Gold refiners allow purchases at Re 1 or as low as 0.1 gram. Some platforms also allow you to transfer your gold balance to another account online. Gold balance can only be transferred to the account on the same platform. This makes for a convenient gifting option.
How safe is it?
The entities that actually sell the digital gold act as custodians of your accumulated gold, whether you buy directly or through a partner platform. A trustee is appointed to oversee the quality and operation of the vaults. At no time does the ownership of your accumulated gold transfer to the partner service provider or custodian. Physical gold is stored in secure safes that are fully insured against any eventuality- loss due to theft or damage caused by natural calamities. However, customers do not have the option to see if it is actually backed by physical gold.
At present, digital gold does not come directly under the purview of any regulatory body. So there is an element of risk because the rules are not yet in place to govern this new area. With the increasing popularity of this product, the amount of gold kept in safes is also increasing rapidly. However, SEBI is expected to introduce norms for digital gold soon. It recently barred brokerage platforms from offering digital gold.