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Let's understand why more and more investors are considering digital gold as a long-term investment and its advantages over physical gold.
Invest 20% of your investment portfolio in digital gold and hedge it against market risks. Over the last couple of decades, there have been many new opportunities for investment.
Cryptocurrency has grown in its popularity. The stock market is also seeing a spot in investment because of the accessibility triggered by online investment platforms.
However, despite all these new investment avenues, there is one commodity that continues to be a favorite among both senior and new-age investors: gold. A recent development is that investors are shifting to digital gold, a format of this commodity which makes buying and selling convenient, secure, affordable, and accessible.
Diversifying Your Portfolio
As you continue your wealth creation journey, it is crucial to make sure that your investment portfolio is fully diversified. It is a well-established fact that one of the most tried and tested methods of generating wealth is by investing in the stock market.
However, this is also a risky proposition if you do not understand how the stock markets work. Hence, it is important to balance risk with a more risk-free option.
Besides investing in mutual funds, fixed income options such as fixed deposits, and one's provident fund, it is extremely critical for investors to put some part of their portfolio towards gold investments.
This is because gold has an almost invincible quality about it. When the stock markets become unstable, the price of gold remains stable, and it sometimes appreciates.
Take the example of the coronavirus pandemic of 2020. Considering the gold return history from 2011 onward, gold investments clocked their best year in 2020, with a 31% return! Hence, experts recommend dedicating 20% of one's investment portfolio to digital gold investments.
Digital Gold vs Physical Gold
Traditionally consumers bought and sold physical gold in the form of jewelry, coins, and bars. However, the digital transformation of the industry led to the birth of digital gold, which can be bought and sold online, thus making it a hassle-free experience.
The Reserve Bank of India (RBI) has designated that all digital gold must be traded at 24-karat. The digital gold purchased by you is securely stored in a bank vault that is insured. Hence you can be assured of its purity and security.
Digital Gold as a Long-Term Investment
When investing in digital gold, it is important to align one's expectations with the unique features of this instrument. While gold prices remain stable during turbulent times, the average annual gold return can fluctuate between 38 % to as low as 4.5 %.
However, if one compares gold prices over a period of time, one will observe that they have consistently appreciated. From 1962 to 2022, the cost of 10 gm of 24 karat gold grew from INR 63.25 to INR 52,670.00! Hence, digital gold is a long-term investment.
Advantages of Digital Gold
Here is a snapshot of the critical benefits of choosing digital gold over physical gold:
- Digital gold can be purchased and sold on demand, putting more autonomy in the hands of consumers looking to diversify their portfolios and grow their wealth.
- You can start investing in digital gold with as little as INR 10. Hence it is much more accessible and affordable to start investing in digital gold than it is to do so with physical gold.
- A key challenge when buying physical gold is that you can never be sure about the purity levels of the gold. It would depend upon the integrity of the specific gold store. On the other hand, digital gold is 24-carat as specified by RBI.
- One has to invest in finding secure storage for physical gold, which also comes with maintenance charges. On the other hand, there are no storage hassles with digital gold. Digital gold transactions can be tracked in your Demat account.
- It isn't easy to sell physical gold on short notice. One will need to identify and then negotiate with a gold store or an individual buyer, which may take its own time. You can share digital gold instantly, thus making it attractive from a liquidity point of view.
Tips For Growing Your Digital Gold
Here's how you can diversify and strengthen your portfolio:
- It is possible to start investing in digital gold with as little as INR 10. Set aside a small amount each month which you can use to purchase digital gold besides all the rest of your investment.
- Be sure to buy digital gold only from credible, trusted platforms. You can check whether the platform has partnered with a recognized gold provider such as Safegold, which trades in 24-karat gold with 99.5% fineness.
- Understand if there are any hidden charges involved when investing in digital gold. For instance, ensure that costs such as Goods and Service Tax (GST) are declared upfront.
- The profits made on selling digital gold are taxed in the form of capital gains. If you sell digital gold before three years, then you are taxed as per your income bracket. However, if you sell it after three years, you will be taxed at 20.8 % after indexation.
- The best advice is to hold on to your digital gold for at least five to 10 years, and even longer if possible, so it works as a hedge against risks.
Digital gold brings diversity and balance to your investment portfolio and convenience to the process of investing in gold. Experts recommend starting to invest in this instrument consistently as a way to grow your long-term gold investments.
The sheen of this yellow metal is expected to grow even further in the future.
Download the Jar App for more information on effective investment plans. Start by investing just INR 10 and grow your portfolio with investments in digital gold.