Planning to buy gold. Here’s how digital gold vs physical gold fare

Gold is traditionally considered as one of the most secure investment options and nowadays there are various ways investors can put in their money, including physical gold as well as digital gold.
Gold can be bought in its physical form as well as digitally. (Reuters Photo)
Gold can be bought in its physical form as well as digitally. (Reuters Photo)
Published on Aug 20, 2021 10:10 AM IST
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Byhindustantimes.com | Written by Meenakshi Ray, New Delhi

Gold is considered a safe haven in terms of investment and there are multiple ways available to invest in the precious metal, including digital gold as well as physical gold. Experts say gold also improves overall portfolio performance by generating long-term returns and provided liquidity with no credit risk. Digital gold is an alternative to physical gold investment and has proved to be the most efficient and cost-effective way of investing in the yellow metal, according to experts.

Here are the pros and cons of investing in physical versus digital gold:

Storage

There is no additional storage or carrying costs while making a digital gold investment. Investors don’t need to worry about the safety of gold as it is stored by the trading companies in a safe vault.

However, holding physical gold comes with storage costs due to the risk of theft, burglary etc. One has to hire a locker or take insurance cover to keep physical gold safe. Banks also put ask people to invest in Fixed Deposit (FD) as a condition of allotting a locker apart from locker rent, which adds to the cost of holding physical gold.

Investment

In digital gold, investment can be made in small amounts of money as there is no minimum purchase limits. Investors can buy and sell gold by weight or by fixed worth.

Gold biscuits or coins are available in the standard denominations of 10 grams and requires a huge investment to invest in physical gold.

However, investors cannot directly invest in digital gold as they are to be done through an authorised third party. Agents buy the corresponding amount of gold when investors place an order for digital gold and place it in a vault on their behalf. The process is the same when they want to sell digital gold holdings. The agent sells the gold at the prevailing market price and deposits the amount to the investor’s account.

Prices

Physical gold prices are not uniform, whereas digital gold prices are the same across the country.

Quality

Investors don’t have to worry about the purity of the yellow metal as only 24 karat gold is possessed by the investor and its quality is never compromised. However, physical gold’s purity may or may not be 100 per cent.

Making charges

Buying gold jewellery involves paying 20 per cent to 30 per cent of the gold’s total value as making charges and 3 per cent GST is charged on digital gold purchases.

Taxes

Gains from a gold investment held for less than three years are taxable as per the investor’s income tax slab rates. For an investment withholding period of more than three years, the gains are taxable at 20% with indexation benefit. For digital gold, gains from gold investments held for less than three years are taxable as per the investor’s income tax slab rates. For an investment withholding period of more than three years, the gains are taxable at 20% with indexation benefit.

Redemption

Like physical gold, digital gold also attracts capital gain tax at the time of redemption of the investment. The redemption process of digital gold is quick and easy and one can redeem it in physical gold coins or bars. Investments can also be easily cashed out without any hassle. However, if the investment in digital gold in aggregate in a year exceeds 50 lakh, the seller will collect tax at the rate of 0.1 per cent. Long term capital gain tax will be levied if digital gold is redeemed or liquidated after 36 months from acquisition. And in other cases, short term capital gain tax will be levied.

Liquidity

Investors can easily buy physical gold from any bank or jeweller but they can only be exchanged through a jeweller. They can redeem digital gold as coins and bullion or cash out the investment.

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Wednesday, December 01, 2021