Buying digital gold? Think twice

Investment in digital gold is booming. From fintech platforms such as Paytm, GooglePay and PhonePe to players such as Tanishq and Kalyan Jewellers, companies are latching on to India’s penchant for buying gold during festive and wedding season.

Digital gold platform Augmont Gold For All says its sales rose more than 45 per cent during the week in the run-up to Dhanteras. “Last week, sales were higher by more than 45% compared to previous weeks,” says Ketan Kothari, Director, Augmont Gold For All.

Most people prefer the yellow metal in the physical form but interest in digital gold has been intensifying post-Covid-19. Digital gold is no different from physical gold except that you hold it in the paper form. The entities selling it give you a certificate of holding. They store equivalent physical gold is a vault. However, there is no way to find out if they are doing it.

Unregulated Space

A number of known and little-known fintech players and small and mid-sized jewellers have started selling digital gold. But not many people know that digital gold is unregulated. For example, if the entity you bought it from shuts shop, you will have no way to claim your gold. There is no regulator or a grievance redressal mechanism. In fact, market regulator Sebi has barred stock broking firms from selling digital gold. Sebi-registered investment advisors cannot recommend it to their clients either.

“Digital gold is a new product. There are no regulations, so anything can happen. Anyone can start selling it because no licence is needed. The government should consider regulating this product,” says Anurag Garg, Founder and CEO, Nivesh.com.

Know Your Custodian

There are at least four custodians—MMTC-PAMP, Digital Gold India, Augmont and Dvara Smart Gold—selling digital gold either directly on their platforms or in partnership with other players. For example, MMTC-PAMP has tie-ups with Paytm, PhonePe and Google Pay. Augmont has collaborated with Kalyan Jewellers and at least 4000 other mid-sized jewellers, says Renisha Chainani, Head of Research, Augmont, Gold For All. Tanishq has started selling digital gold through its SafeGold platform in association with Digital Gold India.

Experts say one should buy digital gold directly from these custodians. Although they too cannot guarantee security, they maintain some checks and balances—the physical gold in their vaults is verified by trustee company IDBI Trusteeship Services Ltd. The trustee ensures that digital investment and withdrawals are reconciled on a day-to-day basis in physical vaults. It is literally a safe-keeper of customer interests. Augmont has also taken insurance of its physical gold informs Chainani.

“If you are buying digital gold from a fintech platform or a jeweler, you should enquire about who the custodian is,” cautions Chainani.

Digital gold has caught investors’ fancy for its sheer simplicity. One can start investing with as little as ₹1. Digital gold platforms also offer systematic investment plans (SIPs) in digital gold. This means you may keep investing a certain amount each month. When needed, you can convert your digital gold into physical gold in the form of gold bars, coins or even jewellery. One can also collect cash against it. But one has to pay delivery and making charges for converting it into bars, coins or jewellery.

“Digital gold gives you more flexibility compared to gold savings plans of jewellers. In such savings plans, investors keep paying some amount each month for a fixed period of time. One has to liquidate the investment after the period is over irrespective of where gold prices are. The freedom to sell units whenever an investor wants is making digital gold popular,” says Garg of Nivesh.com.

Regulated Digital Gold Investment

While digital gold is unregulated, there are other paper form of gold investments that one may consider such as gold ETFs, gold mutual funds and sovereign gold bonds. “Gold mutual funds are the safest form of gold investment for retail investors that give flexibility and easy liquidity. Gold ETFs require you to have a demat account. Sovereign gold bonds are the best only if one can stick to the lock-in period of eight years, after which the capital gains turn tax-free,” says Garg.