For decades, gold has been one of the favourite investment options for many Indians. When financial markets were not as mainstream as today, real estate and gold were the only investment options commonly understood by the retail investor.
Amongst the two, gold had the massive advantage of allowing people to invest even tiny amounts. It was also considered to be safe and was widely accepted.
Recently, the trend of investing in digital gold has picked up, and it has left many retail investors wondering, what is digital gold? Here we will try to explain what digital gold is and talk about the pros and cons of investing in it.
What is Digital Gold?
Digital gold is a safe and easy way to invest in gold. When you invest in digital gold with any company, that company will buy the equivalent amount of digital gold and store it in a secure vault under your name. You can buy and sell it online through many financial institutions.
Also read: Smart Ways To Buy Gold
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Advantages of Investing in Digital Gold
- You can buy it online through many financial institutions. It is as easy as purchasing an app, and it's just as hassle-free when you want to sell it. The transactions happen at the prevailing gold prices even though the institution might charge you some fees.
- You do not have to worry about the legitimacy of the gold. When you buy physical gold, there is always a fear of buying actual authentic 24 karat gold. When you buy it through a financial institution digitally, then making sure that the gold they buy on your behalf is pure is their responsibility.
- Safety from theft. Physical gold comes with the risk of robbery and safety. If you are looking to invest a heavy amount, you will have to store all the gold in your house or somewhere safe. It is a constant source of worry, especially when you travel often. When you buy digital gold, it is the institution's responsibility to keep it protected. You need your credentials and can access them anytime you want through your phone. Even if you lose your phone, you can log in to your accounts through your new phone. Do remember that the institutions would charge you for the vault space that your gold takes.
- It is easy to convert it into physical gold. Instead of selling it and getting the money transferred to your bank, you can redeem it from the institution that you bought it through.
- The prices of digital gold are the same across the country and do not fluctuate in different states like physical gold. So, if you change cities, it might be a hassle to carry physical gold everywhere, and you might not even get the same prices. Digital gold solves this problem.
Also read: How to Calculate Return on Investment?
Disadvantage of Buying Digital Gold
- There are a lot of fees involved. The institution you buy it from will charge you for many different costs like handling charges, safety charges, transaction charges, etc. If you are buying gold as an investment, you will have to account for all these charges while calculating your returns.
- If you have some spare cash at home and know of a reliable gold seller from where you can buy it, then you will save up a lot on fees. This idea makes more sense if you are expecting a sudden price increase and are planning to sell it soon since you will save up a lot on fees and not have to store it for a long time.
- Most institutions have a limit to the period that you can hold digital gold. After that period, you either have to take physical delivery or sell it away. This can be a hassle if you do not wish to do any of these then. However, you can sell it all and make a new investment again. In this case, however, you will have to pay many charges again, which will hamper your returns.
Every institution has its own set of rules and policies, and we recommend you check with the institution you are buying from. Make sure you read all subject-related documents carefully and consult your financial advisor before taking any of these decisions.
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