The Covid-19 pandemic has turned investors’ interest towards different asset classes. Industry authorities say non-physical gold assets such as digital gold and Sovereign Gold Bonds are a couple of of them.
Digital gold is like ‘physical gold’ but without the need of the added challenges of safekeeping and storage. There are no compromising dangers on the purity of gold. Three firms – Augmont, MMTC-PAMP and ProtectedGold – that presently offer you digital gold in India retailer equal amounts of physical gold is insured vaults. Digital gold can be purchased in compact units on various on line platforms, even so, there is a limit of Rs 2 lakh. Most providers have a clause for a mandatory exit or for taking delivery of the physical gold immediately after a fixed period of time.
Sovereign Gold Bonds (SGB) is issued by the RBI on behalf of the Central government at a discount to the present industry price tag for a holding period of 8 years. Experts say these investment choices are easy and fulfil people’s aspirational and economic demands of acquiring gold.
Ashraf Rizvi, Founder and CEO, Digital Swiss Gold and Gilded says, “Digital gold provides more benefits than SGBs to the buyer. With digital gold, you buy the actual value of gold which is stored in physical form in a vault. Digital gold comes with insurance of the full value invested, unlike SGBs. Liquidity is also a major differentiator. Digital gold can be solved at market price in case of emergencies but SGBs come with a holding period of a minimum of five years, making them unavailable for immediate cash/financial needs of the investor.”
On the other hand, Digital Gold is offered 24*7. Investors can acquire a substantial sum in one go or make compact investments spread more than a week or months, based on his/her getting energy. The high-quality of digital gold stands greater at .9999 as compared to that of SGB at .999.
Having mentioned that, Anup Bansal, Chief Investment Officer, Scripbox says, “there are no storage costs or GST charges on SGB. Digital gold, on the other hand, charges 3 per cent GST, which essentially means that on every Rs 100 purchase the net amount invested is Rs 97. There’s also a significant difference between the buy and sell price, about 2-3 per cent for storage, insurance and trustee fees. The Government also pays 2.5 per cent annual interest on SGB.”
Rizvi additional adds, “Even after the minimum holding period of five years, SGB takes another 3 years to fully mature. There’s no additional costs or deduction when reselling digital gold, but there are hefty transaction costs in case the bonds are sold off before maturity. With Sovereign Gold Bonds there’s a cap on the maximum investment on SGBs and their subscription window is short.”
Another point of comparison, Bansal tends to make, “digital gold is taxed like physical gold, whereas there is no capital gains tax on SGB if held for more than 5 years after buying in the IPO. This is one drawback of SGB – the lock-in period of 5 years. Between 5 and 8 years investors can sell in the secondary market, however, the selling price may be at a discount. Currently, there is no regulator for digital gold but SGB does have a sovereign guarantee.”
Experts say digital gold tends to make for an eye-catching lengthy-term asset when compared to the different elements of comfort, expenses, anticipated return, taxation, liquidity, and security. The primary advantages of SGBs continue to be the 2.5 per cent interest and tax-totally free status.