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What is Digital Gold? Benefits, Risks & Taxation. Step-by-Step Guide

Team Jar
March 15, 2023
What is Digital Gold? Benefits, Risks & Taxation. Step-by-Step Guide

An Extensive Guide to Digital Gold Investments with expert advice. Debunking all myths & confusions around Digital Gold for Smart Investors.

What is Digital Gold? Every aspect of it.

Digital gold is a new age version of buying gold through online channels.

It is a more convenient and cost effective alternative for those who want to buy gold.

For every gram of gold you buy, there is actual 24k gold stored in a locker in your name by one of the three gold banks in India - Augmont | MMTC - PAMP | SafeGold.

Investors can easily buy, sell or order physical gold to be delivered at home with a click of a button on the app. Also, there is no minimum limit to buy digital gold. You can start from as low as ₹1.

In this article, we deep dive into every aspect of this new age form of the precious yellow metal.

How does Digital Gold Investment work?

Imagine this, you go to a jewellery shop and buy a piece of jewellery at a fixed price.

You are unsure of the quantity and quality and need to pay extra for the making charges.

You take it back home and safely store it in your locker. Sounds good so far, right?

The following two scenarios can occur after this:

  • There could be a robbery at your place and you could lose all the gold you had or
  • Even if it is safe, when you use it after 10 years, the design could get outdated, need to be polished, resulting in you spending more than you already invested.

Now, imagine this.

You buy the same amount of gold online, which is guaranteed 24k gold, stored safely in vaults insured by sellers of the same.

You can invest as low as ₹1 and in the future, you can either sell it at market price or have it delivered to your doorstep in physical form.

All of this by just using your smartphone!

Sounds too good to be true? Well, there’s a catch. You would not be able to hold it in your hand and show it off in public.

Digital gold’s rise in popularity among millennials and gen Zers is hugely credited to the flexibility of purchasing it in small amounts, and easy access to delivery, and liquidity options.

When you buy digital gold from any app, you’re actually buying from mediators helping you access that gold from reputed companies like Augmont Gold Ltd, Digital Gold India Pvt. Ltd. - SafeGold, and MMTC-PAMP India Pvt. Ltd.

Intermediaries charge a small percentage as investment charges as they are responsible for the safety of your digital gold holding.

What if you lose your smartphone, will your gold disappear?

Nope! Just like stocks from the share market, digital gold is also registered in your name.

It is stored securely in vaults insured and verified by an independent trustee.

This ensures the safety of your gold, even if the app you used to buy gold from, disappears!

Where to buy Digital Gold?

One can buy digital gold from any registered apps and intermediaries.

Digital gold can also be bought from Jar App for as low as ₹1.

Backed by NPCI and the best UPI service providers in the market, Jar app automatically invests your savings in this popular asset, therefore promoting a habit of saving daily. Learn how to use the Jar App.

Digital gold can be bought without KYC but only up to a certain amount depending on the platform used to buy it.

On some popular apps up to ₹50,000 worth of gold can be bought without any requirement of KYC.

On the Jar App, you can buy up to 30 grams of digital gold without KYC.

Advantages of investing in Digital Gold.

  • Digital gold is easy to track and can be accessed at any time of the day
  • It offers high liquidity and can be bought and sold at any time of the day at market rates
  • With country-wide lockdowns and jewelry shops being closed, Digital Gold trader Augmont Gold Ltd. saw its businesses increase by 40-50% during the lockdown period. This just goes to show that many people have been moving towards digital gold
  • Gold is touted to be a hedge against inflation and can be used as collateral for loans
  • Gold rates have been increasing for the past 92 years. Apart from having cultural importance in India, gold also has intrinsic value and has been a great asset with even better returns YoY.

Disadvantages of investing in Digital Gold.

  • It does not generate any passive income for you, i.e., you don’t receive any interest on your investment
  • Another point of concern is that digital gold does not come under regulations of the SBI or SEBI
  • The maximum amount of investment in gold is limited to Rs. 2 lakh on many partner platforms which may pose a barrier to some investors
  • During the delivery of digital gold, holding companies charge a small management fee for holding the gold for you

Considering the easy liquidity, safety, and delivery options, even the disadvantage of investing in digital gold doesn’t seem so bad.

Just like shopping online, digital gold can be invested in easily. To invest in digital gold, one may follow the steps mentioned below.

  • Go to any platform that facilitates gold investments like Jar, Amazon, HDFC Securities, Paytm, etc.
  • Select the ‘Gold locker/vault’ option.
  • Enter the amount you would like to invest in digital gold. The price of digital gold is dependent on market fluctuations, so one can buy it at a fixed rate provided by the intermediary or buy digital gold by weight.
  • Make payment using a debit or credit card, net banking, or simply from your wallet.
  • Next, the amount of gold credited will be updated instantly and your digital gold will be stored in a 100% insured vault.
  • Digital gold can be sold or bought instantly. Investors can also get their digital gold delivered to their hope either in the form of bullions or coins. Many digital gold intermediaries have a set limit of gold delivery and charge a delivery fee for the same.

Taxation on Digital Gold & Physical Gold:

Capital gains from the sale of physical gold is taxed based on whether it is short term or long term capital gains.

If you sell your gold assets (which may be gold jewellery, digital gold or coins) within three years from the date of purchase, any proceeds from that sale will be considered Short-Term Capital Gains(STCG).

Read detailed guide on how taxation works on Digital Gold Investment & Physical Gold Investment.

Who should buy Digital Gold?

Anyone who cannot afford to buy physical form of gold, or cannot invest great sums at a time into the yellow metal can go for digital gold.

Digital gold-backed by 99.9% 24 karat purity and can be bought for as low as ₹1 via Jar App which means one doesn’t have to worry about storing it in a safe place.

All you need is the Jar App on your phone, and you're set. You can auto-invest your money on Jar also. Check Jar's FAQs to learn more.

Digital gold can also be bought from different intermediaries who facilitate buying of digital gold.

Digital gold can be bought and sold instantly at market rates, which means no visiting different jewelry shops asking for discounts on making charges!

Investors can invest in other forms of digital gold such as Gold Bonds and Gold ETFs which are regulated by SEBI and RBI.

When compared to SGBs digital gold seems like a lucrative option of investment for short-term investors due to the flexibility of redemption.

Digital gold, unlike SGBs, can be bought and sold instantaneously via the platform one used to invest in it.

SGBs however have a tenor of 8 years but encashment/redemption of the same is allowed only after the fifth year after the date of issue.

When it comes to mutual funds and ETFs, one has to pay hefty expenses including expense ratio and other relevant charges to the fund managing companies.

In conclusion, digital gold seems like a good option for all those who want to start out in the investment ecosystem with easy to invest options.

One of the best things about digital gold is the flexibility that comes along with it.

The ease of selling and buying at any time of the day along with ease of delivery make it a great option for people who want to save gold for future use.

There are many easy ways to buy digital gold one of them being Jar App which lets you auto invest in the yellow metal in the easiest way possible.

Jar can help you achieve your financial goals by helping you save daily out of transactions you make.

Jar App automatically invests your saved change into digital gold and this will help you accumulate digital gold for a secure future.

Digital Gold Investment Infographics
Digital Gold Investment Infographics