Digital Gold or Physical Gold: Which is a better investment?

In India, gold is much more than a precious metal. For Indians, gold as an investment has much emotional value. For ages, the yellow metal has been seen as the ultimate symbol of wealth and prosperity of a person. When it comes to buying gold, people do not wait for any occasion. From festivals to wedding season, people buy gold for various reasons. The only time people don’t buy gold is probably during the months of ‘Shraadh and ‘Adhikmaas, which most people consider inauspicious.

How to Invest in Gold?

Most Indians, irrespective of their age and income, buy and invest in gold. For generations, Indians have been buying gold jewellery or gold coins to prepare for their children’s weddings. Unlike other assets, the value of gold does not depreciate. And people used to transfer the physical gold from generation to generation.

Gold has always been an investment tool to hedge against inflation and your ‘best friend‘ in bad times. Even during a crisis, one can quickly sell their gold. 

There was a time when the only form of buying gold was in physical form, jewellery, coins, biscuits, or bars. However, in this digital age, there are better and safer options to invest in gold. Now, one can ‘buy’ gold digitally by investing in digital gold; Gold Exchange Traded Funds (ETF), and Sovereign gold bonds.

Physical Gold : Buying Gold in Physical Form

For generations, many people have considered investing in gold to be a safe way to keep their money even in times of inflation. Physical Gold comes in many forms, including jewelry, coins, bars, and storage in a vault.

Physical gold has been considered a safe and almost depreciation-free investment option for generations because of the perceptible surety it provides against inflation.

Investing in physical gold in the form of biscuits, bars, and coins also requires large sums of money and It is Buy/Sell in full units—you cannot buy only part of a unit.

Digital Gold : Buying Gold in Digital Form

Over the past, the craze for gold has remained unchanged. Prompted by the World Gold Council (WGC) efforts, the appetite for gold has increased only. The only change noticed has been in the form of buying gold.

Other than buying physical gold, there are other options to buy gold in digital form. There are several apps, websites, and companies dealing in digital gold. The main difference in buying digital gold is that you are not getting any real gold in your hands while investing in gold. It’s actually like investing in mutual funds, which further invest your money into buying gold.

When an investor buys digital gold, the trading companies check the purity of gold and store it in a safe vault in his name. Once the investor sells the gold, it is removed from the vault.

Though digital gold does not offer any passive income to investors, it is more convenient and cost-effective for investors, even for small investors.

Benefits of Buying Digital Gold

While most families prefer to hold gold in physical form purely due to emotional and privacy reasons, there are several challenges.

On the other hand, digital gold investment offers several benefits over buying gold in the physical form. It does not involve any cost in storing it or safeguarding it. There are no purity issues, and since the trading happens online, the entire process is very transparent. 

The specific benefits of buying digital gold are listed below:

  1. One can make small investments: When purchasing digital gold, there is no minimum investment required. One can make a small investment, as low as INR 100, and buy gold worth that amount. This is very suitable for small investors who cannot afford to make huge investments. Hence, small investors should consider this option. 
  2. Uniform pricing: The price of physical gold vary across the country, city to city and state to state. However, this is not the same in the case of digital gold. The digital gold prices across the country are uniform.
  1. No issue of purity and quality: Physical gold may have problems related to purity and quality. However, when you invest in gold online, you get the assurance of 24K 99.9% purity gold, which cannot be compromised. As a result, investors need not worry about these factors.
  2. Easy and quick redemption: If you want to redeem digital gold, the process is straightforward and fast. Once can redeem his gold in physical gold coins or bars. The investor may easily buy and sell the units. If required, can convert this investment into cash without any problems.
  3. No safety issues: Unlike physical gold, digital gold assets are insured and kept safely deposited in a vault. As a result, there is no risk of theft or robbery—the entire responsibility of keeping the gold safe lies with the trading company.
  4. Track investment regularly: With digital gold, the investors can periodically track the performance of their digital assets using online platforms like Mobile App or websites. This helps them track the growth of their investment and also gain invaluable insights into the entire process.
  5. Helps diversify your portfolio: As per the golden rule of managing a portfolio, it’s always better to have a diversified portfolio. Investing in digital gold not only diversifies your portfolio but acts as a tool to hedge against inflation.
  6. Complete transparency: Since digital gold is traded online, one can easily track the movements on a real-time basis. Thus investors can take advantage of the price movements and make sales or purchases accordingly.
  7. No overheads: When comparing digital gold and gold jewellery, gold jewellery involves making charges and GST on the making charges. When you want to liquidate the jewellery or exchange it, you lose the amount spent on making charges. In addition, there are losses due to ‘wastage’. Both these put together could result in a loss of anything between 20-30%
  8. Contactless and safe: Given the current pandemic situations, investors are wary of the spread of the Covid virus through physical gold. But in the case of digital gold, there are no chances of contracting the virus. So, this is not only profitable but medically safe as well
  9. Government restrictions: In recent times, the government has implemented strict limits on holding physical gold. Any household found holding physical gold beyond the set limit would attract strict penal action from the law and further inquiries from the tax department. However, since buying digital gold is all documented, there is no limit on investing in digital gold.

Digital Gold vs Physical Gold. Which is better?

Here are some factors to consider if you want to decide which form of gold investment (Digital Gold vs Physical Gold) is better for you:

FactorsPhysical GoldDigital Gold
PurityPhysical gold’s purity may or may not be 99.5%.Purity is guaranteed.
PricePhysical gold prices are not uniform.It doesn’t matter which state you live in; Digital gold prices are uniform across the country.
InvestmentGold biscuits or coins are available in the standard denominations of 10 grams. Hence, it requires a huge investment to invest in physical gold.You can buy and sell gold in both a fixed-value and a weight-based system.
CostBuying gold jewellery means paying a 20-30% ‘making charges’ surcharge.A 3% Goods and Services Tax (GST) is added to the price of all digital gold purchases.
StorageStoring gold at home or in a locker is risky.The seller stores the digital gold in the investor’s name in a secure locker—no chance of theft or loss.
TaxationGains from a gold investment held for less than three years are taxable as per the investor’s income tax slab rates. For an investment withholding period of more than three years, the gains are taxable at 20% with indexation benefit.Gains from gold investments held for less than three years are taxable as per the investor’s income tax slab rates. For an investment withholding period of more than three years, the gains are taxable at 20% with indexation benefit.
LiquidityOne can easily buy physical gold from any bank or jeweller. However, they can be exchanged through a jeweller.You can redeem your digital gold for coins and bullion or cash out your investment.

Digital Gold: Future of Investment

For Indians, gold as an investment option is probably as old as the civilization itself. Traditionally people have been investing in physical gold, but it has its own set of challenges. So, suppose you are also wondering how to invest in gold safely and conveniently. In that case, you must consider the digital gold investment. When you invest in gold online, you get all the traditional benefits along with complete purity and transparency.

FAQs Digital Gold or Physical Gold

Q.1: What are the various forms of buying gold?

Ans: Gold can be bought in the physical form (like jewelry, coin, biscuits, or bar) or the digital format.

Q.2: How can one buy digital gold?

Ans: Buying digital gold is straightforward. When an investor buys digital gold, the trading companies check the purity of gold and store it in a safe vault in his name. Once the investor sells the gold, it is removed from the vault.

Q.3: What is the minimum investment that one can make in digital gold?

Ans: A person can buy digital gold of any amount, as low as INR 100.

Q.4: Other than buying physical gold, what are the ways to invest in gold?

Ans: Other than buying physical gold, one can invest in digital gold, Gold Exchange Traded Funds (ETF), or Sovereign gold bonds, which the government issues.