Gold is a generational asset, symbolizing prosperity and serving as a reliable investment passed down over time. It is a contingency fund and an excellent means of portfolio diversification. However, is physical gold the exclusive way to make profits?
To celebrate Akshaya Tritiya, Midday presented the insights of Kalpesh Ashar, a SEBI registered financial expert, that shed light on digital gold. This modern investment avenue offers clear advantages over physical gold.
What is digital gold?
Digital gold currency represents electronic money backed by massive units of gold, usually 24 karat with a purity of 99.99 percent. Transactions involving this financial instrument are completely digital. According to Ashar, you would ideally allocate 5 to 10 percent of your investment portfolio to gold and the rest to stock investments.
Physical Gold vs. digital gold
Contrary to popular belief, physical gold may not always be the most advantageous investment option. Ashar emphasized several common problems associated with physical gold, including challenges in storage, concerns about theft, additional expenses such as charges and locker fees, as well as authenticity issues. Furthermore, emotional attachment to gold jewelry often deters investors from selling it when necessary, thus preventing them from fully capitalizing on their investment.
This is where digital gold, or E-gold, shines, as it removes such barriers. Unlike physical gold, where manufacturing charges are deducted at the time of sale, investors retain the full value of their asset with digital gold.
Before delving into purchasing gold, it is essential to define its purpose, whether for decoration or investment. If your goal leans towards investment, digital gold emerges as the ideal way to go.
What are the ways to invest in gold online?
You can invest in digital gold through three modes.
1. Gold-based mutual funds They offer a convenient avenue to invest in a range of securities, including gold. Like other mutual fund investments, they provide strong liquidity, allowing investors to redeem their holdings within 24 to 48 hours.
2. Gold-Based Exchange Traded Funds (ETFs) work very similar to stocks as they are listed and traded on stock exchanges like NSE and BSE. Investors can purchase them through a demat account and continuously trade them at market prices. Gold ETFs offer the advantage of buying and selling at real-time market prices, providing flexibility and transparency to investors.
3. Sovereign gold bonds (SGB) They are bonds issued by the government with a lock-in period of eight years. An important feature of SGBs is the annual interest rate of 2.5 per cent, along with appreciation in the value of gold, as determined by the RBI. This makes SGBs one of the most lucrative investment instruments. However, the only drawback is the lock-in period.
Gold-based mutual funds and gold ETFs are recommended for investors looking for short-term investments due to their liquidity and flexibility. On the other hand, sovereign gold bonds (SGB) are more suitable for investors with a longer time horizon, given their lock-in period.
What is the right time to buy digital gold?
“Buy gold when there is doom and gloom in the world,” Kalpesh advised. He emphasized, “When stocks are performing poorly or uncertainty prevails, that is the opportune time to invest in gold.”
In short, there is no better time than now to allocate your capital to digital gold. Patience and purpose are crucial to successful gold investing, especially for young, risk-taking investors.
For more information, watch the full interview here: