Playstore Icon
Download Jar App

The Risks Associated With Digital Gold Investments and How to Overcome Them

Team Jar
January 4, 2023
The Risks Associated With Digital Gold Investments and How to Overcome Them

Like other investment options, digital gold too involves certain risks. What are these risks, and how can you mitigate them with a few simple steps?

As the world is going digital, so is our investment portfolio. Whether it’s about investing in shares, stocks, mutual funds, or even assets like gold or real estate, we are going for digital investments instead of physical ones. The primary reason is that digital investments’ convenience and flexibility are unmatched compared to physical investments.

For instance, people are not inclined to invest in digital gold instead of physical gold. However, while going for the same, we often find investors concerned about the risks involved in investing in digital gold. Let’s understand these risks and how we can mitigate the same.

Risks Associated With Digital Gold Investments

Following are some of the major risks associated with digital gold investments:

No Regulators

If we invest in equity instruments, we are relieved because SEBI acts as a watchdog for our investments. The same happens with mutual funds or any security market investment. If we invest in any bank deposit, then RBI is the watchdog. However, it is to be noted that any authority does not regulate digital gold investments.

Generally, once we invest in digital gold, the service provider purchases it and stores it in a safe vault. Without regulators, there is no one to monitor the entire process.

GST is Still Leviable

The seller is liable to charge GST @3% of the gold value whenever we buy gold. This is equally applicable in the case of digital gold investments as well. As the amount we invest is utilized for purchasing actual gold, it attracts GST @3%. Thus, it can be said that we cannot escape GST whether we go for physical gold or digital gold.

Limited Period of Investment

Investment in digital gold can be made only for a limited period. We cannot store gold forever in those vaults. The producers can hold that gold for us only for a limited period, beyond which the gold shall be delivered to us or sold, and the money will be transferred to our account.

Charges

If the gold is to be delivered to us, it will involve delivery charges. Further, it will be delivered in the form of gold coins, gold bars, or even jewellery. Therefore, converting the existing gold into gold coins, bars, or jewelry will involve making charges.

Digital gold can be stored for ten years in a vault. However, the storage is free for the investors for only the first five years. After that, the investors are required to pay certain storage fees.

Selling Limitations

In the case of physical gold, we can sell it anytime. However, digital gold platforms often place certain limitations on selling digital gold. Further, we can sell the digital gold only from the platform from which we bought that gold. Some allow the selling of gold only when the selling window is open.

Further, they hold the right when to open or close the selling window.

How to Mitigate Risks of Digital Gold Investments?

There are certain drawbacks to everything. What is more important is how we can mitigate such disadvantages. In the case of digital gold investments, the above were some drawbacks that investors need to be aware of. However, here are some of the points that can help us mitigate those drawbacks:

  • No Regulators: We should always invest in digital gold through trusted sources and platforms. This mitigates the concerns of no regulators. If the platform is known among the public and has goodwill, then risk concerns reduce automatically.
  • GST Applicability: There is no mechanism to escape GST. Wherever gold is bought and sold, GST will come into the picture. Therefore, there is no point stressing about the same.
  • Limited Period of Investment: Even though there is a limited investment period, we can withdraw the money and reinvest. There is a limitation regarding the period of investment, but there is no limit on how many times we can invest in digital gold.  
  • Charges: Digital gold’s primary purpose is to enable investors to invest in gold. Charges are only levied if we opt for gold delivery at the time of withdrawal, whether the delivery charge or making charge. However, if we are looking for actual gold or jewelry, we shouldn’t go for digital gold investment in the first place. Even if we decide to withdraw money and purchase jewelry from outside, the making charges will be incurred. Therefore, we should go for selling gold and withdrawal in the form of money.
  • Selling Limitations: Different platforms have different terms for selling gold stored in the vaults. Before investing in digital gold through any platform, we should check all the terms and conditions. This will ensure that we don’t compromise the liquidity in digital gold investments.

In a Nutshell

While there are certain limitations to digital gold investments, what’s more interesting is that none of them are big enough to disregard its utility. We can conclude that digital gold investments are beneficial in terms of costs, convenience, liquidity, and security.

Jar is among the reputed financial services provider that allows investors to invest in digital gold. It has been instrumental in teaching a habit of disciplined savings and investing through its automated digital gold investment feature. We can automate our daily savings through Jar.

And the best part is – we can start investing with as low as Rs. 10! Therefore, it’s time we part ways with physical gold and include digital gold in our investment portfolio. How are you investing in gold?