InvestorQ : What exactly is digital gold and can that be seen as the future of gold investing?
Rutuja Nigam made post

What exactly is digital gold and can that be seen as the future of gold investing?

Arti Chavan answered.
3 years ago

In India, the festival of Dhanteras is considered the auspicious time to buy gold. But gold has its own challenges. If you buy physical gold, there is the problem of safety and maintenance. If you opt for gold jewellery, then there is the added risk of production and melting losses over and above the safety issue. Gold bonds issued by the RBI are only available at select intervals at the banking window. All these challenges can be overcome through the recently introduced Digital Gold by MMTC-PAMP.

The Digital Gold is issued by the government owned MMTC in association with PAMP of Switzerland, which is one of the global leaders in bullion branding. The joint venture, MMTC-PAMP, operates the world’s most advanced gold processing facility. MMTC-PAMP has now come out with the issue of Digital Gold, which will be issued online in the form of 24K 999.9 Fine Gold Coins. Investors can not only buy digital gold from the MMTC-PAMP but can also sell gold that meets this criteria to the MMTC. The Digital Gold addresses 5 key challenges of traditional forms of gold purchase. Here is how!

I am not sure if the gold is safe, as I am holding in digital form…

This problem is overcome by MMTC-PAMP sponsored Digital Gold. Every gram of digital gold that is issued will be backed by actual physical gold to the extent of 100% of the quantity of gold issued. That means there is no proportionate risk for you at any point of time in future. The logical next question could be what about segregating of the gold and the Chinese Walls around them. Digital Gold issued by MMTC-PAMP has an answer to that too. The gold backing your Digital Gold has been secluded in a dedicated vault and the gold has been insured with the entire cost of insurance being borne by MMTC. Hence your risk of loss is virtually zero!

How to avoid the hassles of physical gold…

Digital Gold is online gold in the strict sense of the term. You can actually execute the entire gold buying or selling transaction through 3 simple clicks on your laptop or your computer. The entire execution including the actual transaction, the debit to your bank account as well as the credit to your online Digital Gold account happens seamlessly. There is no involvement of physical gold at all in the entire process making the entire process largely peaceful and hassle free for you. What is more, you can use the same logic to sell your gold of similar specification to MMTC and receive funds against the same.

But does not gold entail high initial investment…

Digital Gold has an answer to that too. You can buy digital gold in the lowest possible denomination of 0.50 grams. That would entail an investment of as low as Rs.1300 to Rs.1500. So it is almost like a mutual fund where you can invest very low amounts. This makes the Digital Gold accessible even to small and medium sized investors. Also since your gold is stored in electronic format and there are no risks and storage costs, it becomes all the more attractive for small investors. In fact, it offers a very smart way of participating in gold with small investments and as a hedge against the uncertainties of the market.

But can I invest in instalments in gold…

This is similar to an SIP on mutual funds where you invest in tranches. This has two advantages. Firstly, instead of investing Rs.50,000 in lump-sum, you can invest around Rs.4,000 each month. This is a useful concept if you want to plan for your child’s future or to gift gold jewellery to your near and dear ones. Secondly, there is the advantage for you to capture price fluctuations and get a better average purchase price. Digital gold can be bought and sold transparently at the prevailing market price and that is an added advantage to your Digital Gold SIP.

Can I also convert this Digital Gold into physical gold?

This is one of the unique advantages of Digital Gold. MMTC-PAMP offers you the facility to take delivery in cash or in physical gold. The physical gold charges will be applicable when you take delivery in physical gold but that will be quite marginal. Effectively, you are able to plan your long term gold purchases in a more systematic and intelligent manner.

Digital Gold is an asset class that you must seriously look at. It is not just about the allure of gold but also of the safety and hedge that Digital Gold offers with minimum hassles. From the perspective of buying gold this Dhanteras or from the point of view of keeping gold as a portfolio hedge, Digital Gold could be the answer to most of your questions.