Considering purchasing gold? Check out the benefits and drawbacks of investing in digital and physical forms
In India, gold is one of the highly preferred investments. High inflation beating capacity is its selling point, not to forget its prestige, charm and so on. The prices of gold shoot up when markets witness turbulence. While there are events when the market faces a fall in the price of gold, it does not last for a long time period and always has a strong comeback. Discussed here are reasons to invest in gold and the benefits and drawbacks of opting for gold’s physical and digital forms.
Why must you consider investing in gold?
Returns, liquidity and safety are the 3 important parameters considered by risk-averse investors. Beside these, there are other benefits too for considering gold. These include –
- Gold investment is worthwhile as it is an investment that can beat inflation.
- Gold holds an inverse relationship with equity. For instance, if equity markets begin to drop, gold tends to perform well. So, adding gold to your investment portfolio may still keep your overall portfolio’s return positive in times of volatility when equities underperform.
Physical gold vs. digital gold – which one you must opt for?
Over years, investment option has rapidly evolved and now you can make a gold investment from the comfort of your home. You can invest in the physical form of gold like gold coins, jewellery or digital gold via distinct online platforms. However, when it is about digital gold investment, not many are aware of it and prefer to invest in the physical form. However, financial experts opine that both digital and physical gold are good options and what to choose depends on your requirement. Here’s a comparative analysis between the two options –
| Parameters | Digital gold | Physical gold |
| Meaning | Purity is assured | Physical gold’s purity might or might not be 99.5 per cent |
| Price | Prices of digital gold are uniform across India | The price of physical gold is not uniform |
| Investment | You can purchase and sell gold by fixed worth or weight | To buy physical gold, you need a huge investment |
| Expense | 3 per cent GST is levied on digital gold | Purchasing physical gold may require you to pay 20 – 30 per cent of the gold’s overall value in the form of making charges |
| Storage | Seller books your digital gold in your name with no chance of loss or theft. | You can safely store the gold in a locker at your home. However, the chances of loss or theft are high. |
| Taxation | Gains from your gold investments held for below 3 years are taxable according to your income tax bracket. For an investment period of over 3 years, gains are taxed at 20 per cent along with indexation benefits. | Gains from your gold investments held for below 3 years are taxable according to your income tax bracket. For an investment period of over 3 years, gains are taxed at 20 per cent along with indexation benefits. |
| Liquidity | You can liquidate your digital gold online instantly in exchange for cash. | You can simply purchase physical gold from any jeweller and liquidate the same by approaching a jeweller. |
Ending note
Both physical and digital gold come with their own set of benefits and drawbacks. However, the choice to choose between them depends on you. If your only purpose of buying gold is to invest, you must opt for digital gold. Under digital gold, you can opt for their distinct types like gold ETFs, sovereign gold bonds, etc. In contrast, physical gold is prudent for consumption purposes and can easily be passed on to the next generations. So, for investment, physical gold is not generally recommended. Thus, ensure to invest in digital gold as doing so would endow portfolio diversification and serve as a hedge against inflation and currency and market volatility.
