In the last few months, gold prices have been soaring and, in April, hit a lifetime high by crossing Rs. 70,000 per 10 grams. We've seen gold reach all-time highs before. Despite the exorbitant prices, Indians continued to acquire more of their favourite metal. So, have you been thinking about what to give your tech-savvy women? Well, you need not think more. The best gift that can delight her is gold. So, what is electronic gold, its benefits, and its types? Mayank Bhatnagar, Co-founder & COO of FinEdge shared his views on it.
“Gold may be purchased through a variety of electronic channels, including gold exchange-traded funds (ETFs), gold mutual funds, digital gold, sovereign gold bonds (SGBs), and others. It's an alternative to purchasing actual gold. It tracks the price of physical gold. The minimum investment for buying electronic gold is usually 1 gram or less. So, you can start buying it in small quantities whenever you have accumulated some funds. The gold quality (24K or 99.5% purity) is assured by the merchant/intermediary from whom you buy it,” Bhatnagar said.
Benefits of digital gold: Mayank Bhatnagar listed following benefits
The minimum amount requirement is low and usually starts from 1 gram or even less.
The quality is assured.
It is stored safely in a vault by the AMC / merchant on behalf of the buyer. It is insured.
Ease of transacting at the click of a button as it can be bought and sold online from the convenience of home, office or anywhere else.
Access to real-time market prices at the time of buying and selling.
Option to hold, sell or take physical delivery at any time.
Offers high liquidity as it can be sold at the click of a button.
Let us look at some electronic gold types and their features and benefits.
Gold ETFs
Mutual funds offer gold exchange-traded funds (ETFs). The units are listed on a stock exchange like NSE and can be bought and sold through it. You need a trading and Demat account with a broker to buy gold ETF units. The price of gold bought through Gold ETFs is directly associated to the London Bullion Market and is extremely cost-efficient.
“You must log in to your trading account using the broker's website/app. You can then place gold ETF unit buy and sell orders on the stock exchange like shares. The minimum order quantity is 1 unit (usually equivalent to 1 gram). When you buy units, the amount is deducted from your bank account, and equivalent units are credited to your demat account. Similarly, for sell orders, the demat account is deducted with the gold ETF units and the bank/trading account is credited with the amount,” Bhatnagar explained.
Gold mutual funds
Mutual funds provide gold fund of funds (FoFs) or gold mutual funds, which invest in gold or organizations which are directly involved in gold mining. These funds offer a wider diversification and come with the benefit of not having to open a Demat account and also accept monthly SIP investments.
“The gold mutual fund units can be bought and redeemed through the AMC anytime, thus taking care of liquidity. The units purchased are credited to the unitholder's folio account. Therefore, there is no requirement for a demat account. Gold mutual funds offer the SIP option wherein the unitholders can accumulate units by investing a specified amount every month. You can also purchase fractional units. Gold mutual funds are an excellent way to accumulate gold through SIP for financial goals like a child's wedding,” Bhatnagar said.
Digital gold
It is another way of purchasing electronic gold. With no minimum amount requirement, you can buy digital gold for as low as Rs. 1 and this option allows the investor to take physical delivery of gold at a later stage, if needed. Bhatnagar elisted three entities that provide digital gold:
Augmont Gold For All platform operated by Augmont Goldtech Private Limited
MMTC-PAMP India Private Limited
Safegold platform operated by Digital Gold India Private Ltd.
Apart from selling from their own platforms, they have partnered with various entities and offer digital gold through them. These include fintech, jewellers, banks, e-commerce platforms, gold loan companies, and other entities.
You also have the option to take delivery in the form of gold coins/bars at your doorstep. The other option is to exchange digital gold for physical gold at designated partner jewellery stores. If you exchange it for jewellery, the making charges will apply.
Sovereign Gold Bonds (SGBs)
SGBs are government securities denominated in grams of gold. You can buy and hold them instead of buying physical gold. RBI issues the SGBs on behalf of the Government of India. The RBI comes out with a subscription calendar regularly, and investors can subscribe.
“The minimum investment is 1 gram of gold. The bonds pay a 2.5% interest p.a. The interest is taxable at the individual’s slab rate. They have an 8-year tenure. The investor can do an early redemption/encashment after the fifth year. The capital gains earned by the unitholder on SGB redemption are exempted from taxation,” he said.
Electronic gold can be a perfect gift for your tech-savvy women. You can do an initial electronic gold purchase transaction in her name. You can also guide her on how to buy transactions in future so that she can keep accumulating electronic gold regularly.
“Electronic gold is an excellent financial product for accumulating gold regularly for long-term financial goals. A significant financial goal for many parents, specifically mothers, is accumulating gold for their child's wedding. They can accomplish this financial goal by regularly buying electronic gold in small quantities by starting an SIP with a gold mutual fund. Finally, they can redeem the units nearer the wedding date. The redemption proceeds can be used to purchase jewellery. Thus, electronic gold can help the tech-savvy women and the family to glitter with gold jewellery during the "Big Fat Indian Wedding",” Bhatnagar signed off.
