Home / Money / Personal Finance /  Buying digital gold in Diwali? Charges to disadvantages — key things to know before investing

Buying gold during Diwali has been a tradition in India. In the wake of COVID-19 outbreak, when going to a jewellery shop is still considered as risk, more and more people are opting for digital gold. Customers can buy digital gold from vendors and refiners of gold through various platforms. There are three companies offering digital gold—Augmont Gold; MMTC-PAMP India Pvt. Ltd, a joint venture between state-run MMTC Ltd and Swiss firm MKS PAMP; and Digital Gold India Pvt. Ltd with its SafeGold brand. It can also be purchased via popular digital wallets including Paytm, Amazon Pay, Google Pay and PhonePe.

Easy availability and the price starting from as low as 1 make it attractive to investors. Here are the key things you need to keep in mind while buying digital gold

Purity: One of the most important things that an investor should check before investing in digital gold, is the purity of underlying gold. "Digital gold purchased from MMTC-PAMP is more likely to be purer than that purchased from platforms in collaboration with SafeGold," said Pranjal kamra, CEO, Finology.

"The purity of underlying gold should be certified on a regular basis," said Sameer Kaul, MD & CEO, TrustPlutus Wealth Management.

Different charges: Buying digital gold will attract 3% GST over the cost of your gold, just like in case of buying physical gold. Digital gold providers also charge an additional fee of 2-3% for the expenses such as cost of storage, insurance and trustee fee. If you want to convert your digital gold to physical gold, there will be making charges, depending on the quantity. You may also have to pay additional charges to get it delivered to your doorstep.

"Investors should understand the process of redemption along with applicable charges in case they are investing with intention of taking physical delivery," Kaul shared.

Limitations: Usually, digital gold products have a maximum holding period after which the investor has to take delivery of gold or sell it back. Different merchants impose different holding period conditions for digital gold.

"After holding your digital gold for 5 years with MMTC-PAMP you shall be required to either sell the gold or convert it into gold coins. So, you need to go through the FAQs carefully, specially regarding holding period and limit on investment before buying digital gold," Pranjal kamra, CEO, Finology.

Disadvantage: "A major disadvantage of buying digital gold is the lack of any regulatory mechanism in the digital gold space whereas gold funds come under the regulatory jurisdiction of SEBI. Investors can also easily invest in gold funds and redeem them through the mobile apps or websites of various mutual fund houses, investment platforms and marketplaces," Naveen Kukreja, co-founder and CEO, Paisabazaar.com.

"If investing in gold ‘digitally’ is the prime objective, then investors can also consider gold mutual funds as a superior alternative," said Kukreja.

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