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Planning to Buy Digital Gold? Don’t Overlook these Disadvantages

April 21, 2023

Table of Contents

    Table of Contents

      Digital Gold is the new kid in town and not only Millennials, it is being loved by Baby Boomers & Genz as well. Let's know the Advantages & Disadvantages of Digital Gold.

      Digital Gold is the new, modern and cool alternative to Physical Gold.

      Free from currency rate manipulations and changes, it allows the investor to trade throughout the world without actually touching Physical Gold. 

      Earlier, because of its exorbitant cost, Gold investments were unheard of among the middle class.

      Even a small purchase of 100g would cost 3-4 lacs, depending on the market price.

      That's where Digital Gold jumped in, promising to address the problem by allowing users to invest as little as Re 1 in Gold through various platforms - like Jar app. 

      As a result, a small-time investor can buy Digital Gold in India through a variety of apps and websites.

      However, only three Gold companies, Augmont Gold Ltd, Digital Gold India Pvt. Ltd. and MMTC-PAMP India Pvt. Ltd. - SafeGold keep your Gold.

      It's a secure, simple, and cost-effective way to buy and sell Gold online that doesn't necessitate additional storage or transportation charges.

      Is expected that around 80 million customers use the digital means to purchase Gold. They have transacted on multiple apps and collectively have around 2 tons of Gold in their possession.

      Definitely not a small number. This is owing to the product's fungibility and the fact that it requires no storage.

      Despite all the benefits, there are a few things to think about before investing in Digital Gold.

      Dis-advantages of Digital Gold

      1. No regulatory body

      Digital Gold does not come under the regulations of SBI or SEBI. Hence, the lack of a regulator is a risk associated with investing in Digital Gold.

      When you buy Digital Gold, the producer buys Gold in your name worth the same amount. This Gold is stored in third-party or the seller’s vaults.

      In most cases, a trustee is chosen to ensure that the quantity and purity of Gold remain consistent with the amount and purity of Gold purchased by the investor.

      However, there is no oversight to ensure that the trustee is completing his or her job effectively.

      Statutory audits are performed, but Digital Gold suppliers pick auditors, and the report is also delivered to them.

      2. GST increases the price

      When purchasing Digital Gold, you must pay a 3% goods and services tax (GST), exactly like when purchasing physical Gold.

      For example, if you buy Digital Gold for ₹1,000, you would only receive ₹970 worth of Gold because the remainder will be withheld as GST.

      The cost of storage, insurance, and the trustee fee are all covered by the spread charged by Digital Gold suppliers, which ranges from 2-3 percent.

      3. Maximum holding term

      Digital Gold products typically have a maximum holding duration after which the investor must either take delivery of Gold or sell it back.

      MMTC-PAMP investors, for example, will be required to accept delivery or sell the Gold they have purchased.

      If the investor does not take delivery after five years, MMTC-PAMP will impose further charges. 

      4. Making and Delivery Charges

      One of the benefits of Digital Gold is that it allows you to take actual Gold delivery. Physical delivery is available at the end of the investment period or whenever the Gold is sold.

      However, keep in mind that there are fees because physical Gold must be delivered in the shape of coins or bars, depending on the quantity. The method of charging differs depending on the coin design.

      But if you see the advantages, considering the easy liquidity, safety, and delivery options, even the disadvantages of investing in Digital Gold won’t seem so bad.

      Advantages of Digital Gold

      1. Convenient

      Digital Gold transactions, unlike physical Gold purchases, take place online and do not require buyers or receivers to be physically present at the time of sale. They can buy Gold from anywhere, anytime. 

      2. Safety

      If you buy physical Gold, there's always a risk of theft, robbery and a number of other things. Digital Gold is safe, secure and stored in vaults. There's no risk of theft involved.

      3. Liquidity

      Gifting Digital Gold is, again, a fantastic option because it is highly liquid and can be used as part of your emergency fund. They can be sold on exchanges at any time.

      4. Purity

      When buying or gifting Gold in physical form, there is a chance of receiving impure Gold.

      Buyers or receivers need not be concerned because it is the issuer's responsibility to maintain purity. Also, Digital Gold from Jar is 24K, 99.95% pure. 

      5. Holding costs

      Theft, robbery, and burglary are all risks of keeping actual Gold at home. As a result, the owner must pay rent for a locker and pay a premium to insure the yellow metal in order to keep Gold safe.

      Investing in Digital Gold, on the other hand, shifts the risk and cost of holding Gold from the investor to the issuer of Digital Gold.

      6. Ease of Investment

      Investors have the option of holding Digital Gold in fractions, such as the ability to invest as little as Re 1 in MMTC-PAMP Digital Gold (99.95 purity certified Gold).

      You can use the Jar app to invest in Gold and make investments from the comfort of your own home.

      7. What you pay for

      When buying Gold jewellery, you not only have to pay the price of Gold, but also making charges and additional taxes.

      Jewellers charge anywhere from 7% to 25% based on the design of your jewellery. With Digital Gold, you only trade pure Gold, which is 24 carats of Gold.

      The total amount you spend is invested in Gold only. You only have to pay 3% GST at the time of making the purchase.

      Don't you agree now? Digital Gold is a great option to start your investment journey with. 

      You can start with small investment plans, like what Jar offers, which can help you achieve your financial goals by helping you save daily out of transactions you make. 

      Jar app lets you automatically invest your saved change into Digital Gold and this will help you accumulate Digital Gold for a secure future.