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If you regularly invest in gold, you are likely to have heard about digital gold. It is a method of investing in gold, which allows you to buy the yellow metal for as low as 1, from the comfort of your home without worrying about safety or the purity of gold. Right now, there are three companies offering digital gold in India—Augmont Gold; MMTC-PAMP India Pvt. Ltd, which is a joint venture between state-run MMTC Ltd and Swiss firm MKS PAMP; and Digital Gold India Pvt. Ltd with its SafeGold brand.

A relatively new player, Digital Swiss Gold (DSG), is offering the option to own Swiss gold through its app. Let us understand the features and risks of DSG to know if it is worth investing in and whether it provides any advantage over digital gold offered in India.

What is DSG?

The company named Digital Swiss Gold India Pvt. Ltd is allowing investors to own Swiss gold through the app Digital Swiss Gold. The gold bought by you is kept in Brink’s vaults in Zurich, Switzerland. Brink’s operates high-security bullion vaults.

For purchasing gold, your Aadhaar-based KYC (know your customer) is done. The company buys gold from Swiss refiners. You are issued a proof of ownership by way of photograph of the gold bar and a digital warehouse receipt with details such as date of issuance, name of the holder, account number, gold bar serial number, gold amount, vault location, gold refiner, hallmark verification and associated Linux Foundation Hyperledger blockchain number.

Cost of buying dsg

Prices of Indian digital gold and DSG are pegged to London Bullion Exchange gold price. However, as DSG is not imported to India, import duty of 7.5% and a cess of 2.5% are not levied, making it cheaper than Indian digital gold. “Typically, the difference in gold prices between digital gold providers in India and Swiss gold is 6-8%," said Ashraf Rizvi, founder and chief executive officer, Digital Swiss Gold.

“We charge investors up to 3% while the differential between the buy and ask price can be up to 6% in case of digital gold offered in India due to the 3% goods and services tax charged," he added.

Investment cap

As it is an investment made outside India, there is likely to be an investment limit in a financial year. Under the liberalized remittance scheme (LRS) you can invest only up to $250,000 abroad in a financial year.

One of the significant features of digital gold is that it gives the investor the option to take physical delivery of gold on redemption, while the same is not possible in the case of DSG as the gold is kept outside India. However, investors can sell the gold back to DSG via the app itself.

“On selling DSG, money is typically credited in 2-3 days to the investors’ accounts. You can invest in DSG through credit or debit cards, but international payments will have to be activated on the card," said Rizvi.

“People can invest or acquire assets using credit or debit cards outside India," said Tarun Kumar, a Delhi-based chartered accountant.

“However, when making payments, you should ideally inform your bank, which will help you make the necessary disclosure under the Foreign Exchange Regulation Act (Fema)," said another chartered accountant, who did not want to be named.

Taxation

The gains from investing in digital gold will be taxed in the same way as physical gold. So, in case you sell the gold before three years, the gains will be taxed in accordance with the slab rate, while if it is sold after three years, the gains will be taxed at the rate of 20% post indexation.

However, in case of DSG, the investor will have to make additional disclosures in the income tax return (ITR).

“It will be considered as a foreign asset; therefore, one will have to disclose the same in tax forms under foreign assets," said Prakash Hegde, a Bengaluru-based chartered accountant. “Also, one should keep the documents showing source of funds as it may be scrutinized by the tax department," added Hegde.

Also, investors should check the requirement to make disclosure using forms 15CA or 15CB about the money remitted abroad to avoid any Fema violation.

Generally, if you are sending money abroad under LRS, you are required to fill up the forms and deposit the same with your banks. You should check with your bank or chartered accountant for any such requirement.

Should you invest?

The concept of owning Swiss gold sounds interesting and is cost-effective, but it has its own risk which one should be mindful of.

There are no regulations around digital gold in India. In case of DSG, the investment will be made in a foreign country and will be governed by the laws of foreign jurisdiction.

In case any dispute arises, investors may face problems in getting a resolution. “In the agreement with the company, there should [ideally] be an arbitration clause, where it should be mentioned that all the disputes [arising with regard to DSG investments] will be subject to jurisdiction in India," said Kumar.

Also, many people may not like the idea of not being able to access gold.

“Buying international gold is an extremely niche market and something available for Indians for many years but the majority of people did not opt for it due to higher transaction costs and difficulties in foreign exchange conversion," said Sumesh Ramankutty, chief marketing officer, Augmont, an Indian digital gold provider.

One should know the risks before investing, warn advisers.

“The prospect of investing in Swiss gold looks attractive given the cost-effectiveness, but it is an exotic option, overindulgence should be avoided. Those who want to take the risk and invest should not have a big exposure and can start with a very small allocation. We advise people to have 6-8% of the portfolio in gold. Out of this maybe 1-2% can be invested in Swiss gold," said Arvind Rao, a certified financial planner, chartered accountant and founder of Arvind Rao & Associates, a financial advisory firm.

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