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Business News/ Money / Personal Finance/  This Dhanteras, avoid investing in digital gold for these 5 reasons

This Dhanteras, avoid investing in digital gold for these 5 reasons

The love for gold prompts many people to invest in digital gold without realizing the security threats and other pitfalls in the long run.

Beware of investing in digital gold (REUTERS)Premium
Beware of investing in digital gold (REUTERS)

This Diwali season, many investors are queuing up to park their money in digital gold. Surf online and you will some dazzling advertisements of reputed companies reiterating the benefits of investing in gold along with the promise of either earning you great returns or repaying you with 24-carat gold in equal value. 

Both online and offline campaigns gain more prominence during the Dhanteras festival wherein many families consider it auspicious to put some money in gold. While the sheen and shine of gold coupled with the possibility of earning good returns in the future may lure you, think again before you put your money in digital gold this year. A hard look at myriad factors, especially, safety concerns may force you to reconsider your digital gold investment decisions.

If you are still yearning to know what’s wrong with digital gold investments, consider the following facts.

Safety issues

You spend your money on something that is not regulated by anybody. This simply hints at possible security concerns regarding digital gold investments in India. The lack of regularization has caused many people to suffer losses in the past. So much so that the Securities and Exchange Board of India (SEBI) refrained investment advisors and brokers from selling digital gold to their customers.

One basic tenet of personal finance is that you must invest in only those options that you understand and deem safe. With no safety regulations in place, you will not know whom to turn to in case you fall prey to fraud and consequent monetary losses. So, abstain from investing in this segment till the government passes and affirms laws regulating it.

Paying more to lend a shape

What if you want to turn your digital gold into physical gold bullion or jewellery? The price you pay for digital gold is not the same as you pay for physical gold. Not only the price per gram differs, but you will also have to pay more towards jewellery-making costs. Digital gold rates are always lower than gold jewellery prices. So, if you are buying digital gold now hoping that it will benefit you as you turn it into jewellery later, think again.

Apart from the making charges on jewellery, you end up paying more in taxes. This is because GST is levied twice – first on redemption of digital gold and second on the market price of the finished jewellery that you had ordered.

Losing out on interest

You cannot rely on assets to earn you returns only after a specific duration. Some investments also earn you regular interest income like sovereign gold bonds (SGBs) that earn you interest twice a year, bank deposits that avail you of interest regularly (monthly, quarterly, half-yearly or annually) or bonds like non-convertible debentures that earn you interest continuously till the redemption date.

Though you can accumulate enough digital gold by parking some money in it regularly, there is no way that you will earn interest income on the deposits. The only respite is when the prices of gold shoot up, thus, allowing customers to sell off their digital gold and earn good returns on them. Till then, you can only invest, wait and watch for your gold prices to rise to avail you enough income on your investments. 

Apart, the income you from digital gold is subject to tax. You cannot escape tax levy as digital gold sellers are bound to share information of their sales to the concerned Ministry.

Storage problems

How many times do we hear of companies assuring us that for every gram of digital gold we buy online, they secure a similar quantity of real gold in a vault or locker? But, is the vault secured? Is there any way for you to check if real gold is secured in a locker in your name? Are the digital gold companies liable to share with you the details of the gold secured or the certainty of the locker opened and maintained in your name? If the refiner goes bankrupt, there is always the risk of you losing out on the digital gold bought.

Free storage is a hoax

The certainty of storing gold in secure vaults for free does not exist. As goes the popular saying “There is no free lunch in this world". The promise of not having to pay in secured vaults for free is nothing short of fiction. This is because customers have to pay security charges to ensure that their gold investments are kept in insured and certified vaults at adequately protected premises.

Looking to invest in gold?

If you are looking to invest in gold, why not opt for SGBs or gold exchange-traded funds (ETFs) that are secure and backed by the necessary laws and regulations in place? Apart, gold ETFs allow you the benefit of liquidity, which means that you can redeem whenever you need money or have gained from appreciation in gold prices.

Sovereign Gold Bonds (SGBs) are government securities denominated in gold with one gram as a basic unit.
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Sovereign Gold Bonds (SGBs) are government securities denominated in gold with one gram as a basic unit.

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Published: 16 Oct 2022, 04:00 PM IST
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