Four ways of buying digital gold

Indians love splurging on gold. As a country, India is the largest importer of gold, with 800-900 tonne of gold imported every year, accounting for 25% of the global demand. The yellow metal is popular for many reasons. It not only provides capital appreciation and liquidity, but has also proved to be an excellent hedge during tough economic times. Currently, with the outbreak of the COVID-19 gold’s dominance as a hedge has been reinforced. It is reflected the prices. Gold has risen almost 35% in 2020.

Shweta Jain, Founder & CEO, Investorgraphy, said “The advantages of buying digital gold are that it is hassle free, one can invest without having to worry about storing it, safety etc. It is also cost effective.

The COVID-19 pandemic has boosted sales through online channels, disrupting the traditional ways of buying gold. According to World Gold Council, the demand for gold as an investment has increased, indicating that Indian investors are shifting away from traditional jewellery to digital gold. Moreover, there are many concerns on buying physical gold such as the purity, high making charges and above all storage, considering the high cost of bank lockers. So, if you want to invest in paper gold, here are a four easy ways to go about it.

Nish Bhatt, Founder & CEO, Millwood Kane International – an investment consulting firm, says, The outbreak of COVID19 created global uncertainties and pushed gold prices upwards. Major central banks – Fed, ECB & BoE have slashed interest rates to an all-time low, diverting investments towards the yellow metal. Expect gold prices to trade on a strong note till clarity emerges on a vaccine, stimulus package in the US and control on COVID cases in Europe.

SOVEREIGN GOLD BONDS (SGBs)
Sovereign Gold Bonds are government securities and are denominated in grammes of gold. There is a dual benefit of investing in SGBs as investors earn 2.5% per annum simple interest and market value of gold at the time of redemption. For example, if you buy SGBs at Rs 50,000 and if prices appreciate to Rs 60,000 in future, then apart from capital appreciation of Rs 10,000 you also earn 2.5% interest every year. .

The issue price for these bonds is decided based an average closing price of gold of 999 purity for the last 3 working days of the week preceding the subscription period. If you are digital savvy then you are given an additional discount of Rs 50 per gramme for buying it online. The bonds are issued for eight years with an exit option from fifth year on the interest payment dates.

Dos and Dont’s:  Considering gold prices are determined by market forces there are chances of loss of capital if gold prices decline. However, it doesn’t affect the number of units purchased and remains same as it was during the time of purchase.

GOLD EXCHANGE TRADED FUNDS (ETFs)

Gold ETFs are listed on the stock market with gold as an underlying asset. Like any other company stock, gold ETFs can be bought and sold at market prices and you can start investing by opening a demat account. The first gold ETF was launched in India in 2007 and currently their market size is about Rs 14,000 crore.

Dos and Dont’s:  You are charged an expense ratio of around 1% for managing the fund. Given the fact that you can trade in ETFs just like shares, you also need to pay broking charges for buying and selling the fund.

GOLD FUNDS

If you don’t have a demat account but want to invest in gold, then Gold funds is the right answer for you. These funds invest in gold ETFs and are offered by mutual funds. You can start an SIP in gold fund with an amount as low as Rs 1,000.

Dos and Dont’s: Buying gold funds is costlier as you have to bear the expense of both gold ETFs and gold funds. There might also be an exit load if you decide to redeem the units before the completion of lock-in period.

GOLD SYSTEMATIC PLANS

GSP is a type of Systematic Investment Plan or SIP to buy gold, which is offered by several broking and digital payment platforms. You can buy the gold every month at staggered rates, which also gives you the advantage of rupee cost averaging in the long run. One of the biggest advantages of GSP is that you can buy gold for as little as Re 1. Once you accumulate the minimum units you can either sell it online or get the physical gold of equal denomination delivered to your notified address.

Dos and Dont’s: It is also important to know that while the Securities and Exchange Board of India (SEBI) is the regulator for Gold ETFs and Gold Funds, there is no regulatory body for GSP. However, under the plan for each instalment, an equal portion of physical gold is stored with the custodian.

Gold is considered a safe haven asset and is proved useful during a crisis. Further, the performance of gold is inversely related to equity, which makes it an ideal asset for adding diversification to your portfolio.