Gold, the safe haven for investors, has now gone digital. The shiny, yellow metal has been the cherished buying option for every Indian household for centuries, especially on festive occasions like Diwali and Dhanteras. Investors’ predilection for it proves its reliance as a protector against the precarious nature of the equity market.
However, the distinction is far from being church and state; storing gold is also viewed as an investment in families that can either be passed down through generations or be liquidated in critical times. In FY20, gold funds have offered average returns of 26.84%, trumping other major assets. Until recently, the very concept of buying, investing, storing, or selling gold has been physical and offline carrying its own set of problems related to storage, transportation, etc. To combat this, e-gold has been introduced by MMTC-PAMP.
Digital Gold is a nascent concept in India wherein anyone can invest online in 24K gold, with an assured 99.9% purity, in any denomination including fractions. Now, even at a nominal value of Re. 1, anyone can buy gold in a convenient and cost-effective manner. This is an increasingly attractive option, especially for the youth, who avoid storing precious metals at home.
Where can one invest in digital gold? Yes, that’s yet another brewing question. Currently, in India, there are limited options. The first is MMTC-PAMP India Pvt. Ltd. MMTC (Minerals and Metals Trading Corporation) is a government-owned company that issues digital gold while PAMP (Produits Artistiques Métaux Précieux) is a Switzerland-based company that operates the world’s most advanced gold processing facility. Both the organisations collaborated in 2018 to form MMTC-PAMP which allows investment in digital gold in India; here, people can not only invest/buy gold but also sell gold if it meets the criteria set by MMTC.
The second is Augmont Gold Ltd., a private corporation that specializes in refining for the bullion and jewelry industry. Apps like Paytm and G-Pay act as an intermediary or a platform for trading. Once invested, these trading companies purchase an equivalent amount of physical gold which is then stored under the name of the investor in secure vaults.
In order to trust a rising phenomenon, it is imperative to draw a line of analysis against the status quo. Let’s give you five reasons why digital gold may trump physical gold. Firstly, the minimum weight of gold that one can purchase in the store amounts to a single gram. However, with digital gold, the weight can even lie in the range of 0 to 1 g. Secondly, the investment is 100% secure and legit. It is safely stored in vaults in MMTC-PAMP’s heavily guarded premises and can even be used as collateral for online loans. Thirdly, there is no cap value. Any amount invested will be relatively charged against the gold as opposed to paying a standard amount in the real world. Fourthly, it is the best mechanism to get handsome returns in the long run. The volatility of the stock market has been highlighted amidst the pandemic and digitization makes the investment much more convenient, safe and secure. Last but not the least, digital gold eases selling. With an almost 300% hike in gold prices in the last decade, it is extremely convenient to sell gold at the current value without incurring additional costs. It is transferred easily through Instant Bank Transfer.
Only time can tell whether the digital gold will shine or not. The accessibility, convenience and security of digitisation are bewitching to the millennial investors. However, with the underlying problems such as lack of governmental regulating bodies like RBI or SEBI in digital gold and, in some cases, the companies offer a limited storage time period beyond which one must either take physical delivery or sell the gold, continues to persist. Some might even prefer Sovereign Gold Bonds, as they pay an additional 2.5% interest, or Gold ETFs, as they are regulated by SEBI. However, investors who prefer investing in physical gold would willingly shift to digital gold once it rises more rapidly in the future.