Digital Gold vs. Gold ETF vs. SGB – Where to Invest in 2024-25?

Digital Gold vs. Gold ETF vs. SGB – Where to Invest in 2024-25?

Anubhav Dwivedi's Picture
Anubhav Dwivedi
•

Introduction:

  • Investing in gold has always been a popular choice for investors in India. Recently, there has been a significant increase in gold demand, reaching 210.2 tonnes in the third quarter of 2023. The World Gold Council reports a 10% rise in gold demand, especially during the festive season. With the rise in gold investment, modern options like Digital Gold, Gold ETFs, and Sovereign Gold Bonds (SGBs) are gaining attention.

But which one is the best fit for you? In this article, we will compare these gold investment options and highlight their benefits.

What is Digital Gold?

  • Digital gold is an easy and cost-effective way to invest in gold. You can buy and sell gold online in small amounts, starting from as little as Rs. 10. It offers features like easy liquidity, secure storage, and no making charges. The digital gold available on platforms like Tickertape is of 24K purity, ensuring high quality and reducing the risk of fraud. It is one of the most popular options for online gold investments.

What are Gold ETFs?

  • Gold ETFs are Exchange Traded Funds that invest in gold bullion with 99.50% purity. Investors can buy and sell gold through Gold ETFs without physically owning the gold. Like digital gold, Gold ETFs eliminate the need for storage and making charges associated with physical gold purchases.

What are Sovereign Gold Bonds (SGBs)?

  • SGBs are government-issued financial instruments available annually for purchase at authorized banks, post offices, brokerage firms, and online platforms. SGBs represent digital gold, removing several risks linked to physical gold. They also offer easy transferability and traceability.

Digital Gold vs. Gold ETF:

Parameters Digital Gold Gold ETF
Meaning An alternative to physical gold, each unit is 99.9% 24K pure gold. Invests in physical gold (99.5% purity) sourced from banks, approved by RBI.
Who offers Offered by digital partners like Tickertape in partnership with Digital Gold India Pvt. Ltd. (SafeGold brand), and others Provided by various Asset Management Companies (AMCs) in India.
Minimum investment Rs.10 Minimum 1 unit, equivalent to 0.1 gram of gold.
Trading Available 24/7. Only during market hours.
Ease of Investment Requires only a valid phone number. Requires a demat account.
Cost 3% GST on digital gold transactions. Includes expenses like Demat account opening charges, transaction charges, and expense ratio for the holding period.
Taxation Taxed at 20% after three years. Taxed at income tax slab rate (e.g., 30%) regardless of holding period.
Regulation Not regulated. Regulated by SEBI.

Digital Gold vs. Sovereign Gold Bonds:

Parameters Digital Gold Sovereign Gold Bond (SGB)
Affordability Minimum investment is Rs.10. Minimum investment is 1 gram.
Lock-in period No lock-in period. 5 years.
Trading Available 24/7. No redemption before 5 years.
Disciplined Investing Daily/weekly/monthly SIPs available. Not available.
Tax Taxed at 20% after three years; no capital gains tax if held for eight years. Taxed at 20% after three years. No capital gains tax if held for eight years.
Cost 3% GST on digital gold transactions. Transaction and demat account opening expenses.
Regulation Not regulated. Regulated by RBI.

Digital Gold vs. Gold ETF vs. Sovereign Gold Bonds:

Parameters Digital Gold Gold ETF Sovereign Gold Bonds (SGBs)
Capital Return Change in gold prices. Potentially lower than return on gold due to allocation to cash and debt. Change in gold prices.
Income Return Can lease gold to trusted jewellers, earning an additional 3-4% return. Not applicable. 2.5% interest.
Investment Allocation Entire amount invested in 24K gold. Not fully invested in gold; includes cash and debt for liquidity. Linked to gold prices.
Long-term Capital Gains Tax Taxed at 20% after three years. Taxed at income tax slab rate (e.g., 30%) regardless of holding period. Taxed at 20% after three years. No capital gains tax if held for eight years.
Indexation Benefit Available, reducing tax on gains by adjusting acquisition cost based on inflation. Not available. Available, reducing tax on gains by adjusting acquisition cost based on inflation.
Liquidity Available 24/7. Only during market hours. No redemption before 5 years; lack of liquidity in secondary market.
Low Investment Amount Minimum investment as low as Rs. 10. Minimum investment of 0.1 gm of gold. Minimum investment of 1 gm of gold.
Disciplined Investing Daily/weekly/monthly SIPs available. Few brokers offer SIPs. Not available.
Ease of Exchange Easily exchanged for physical gold or converted to jewellery. No direct exchange for physical gold. No direct exchange for physical gold.
Ease of Investment Requires only a valid phone number. Requires a demat account. Requires a demat account.
Cost 3% GST on purchase. Includes expenses like Demat account opening charges, transaction charges, and expense ratio for the holding period. Demat account opening expenses.
Regulation Not regulated. Regulated by SEBI. Regulated by RBI.

Benefits of Investing in Digital Gold:

  1. Better Returns: Digital Gold has the potential to generate better returns compared to Gold ETFs, even after considering the 3% GST on Digital Gold purchase.
  2. Full Gold Investment: The entire amount invested in Digital Gold is allocated to 24K gold, unlike Gold ETFs where the investment may also include cash and debt for liquidity purposes.
  3. Additional Returns through Leasing: Investors in Digital Gold can lease their gold to trusted jewellers, earning an additional 3-4% return, enhancing overall returns.
  4. LTCG Benefit: Investing in digital gold results in a 20% tax rate on long-term capital gains after three years, compared to the higher income tax slab rate of around 30% applicable to Gold ETFs.
  5. Indexation Benefit: Digital Gold investors can benefit from indexation, reducing the tax burden on long-term capital gains, which is not available with Gold ETFs.
  6. Liquidity: Transactions in Digital Gold can be conducted 24/7, providing greater flexibility compared to Gold ETFs, which can only be transacted during market hours. SGBs, on the other hand, have restrictions on redemption before 5 years.
  7. Low Minimum Investment: Digital Gold allows investors to start with a minimum investment as low as Rs. 10, making it accessible to a wide range of investors. In contrast, SGBs require a minimum investment of 1 gm of gold, and Gold ETFs require a minimum of 0.1 gm of gold.
  8. Disciplined Investing through SIPs: Investors can adopt a disciplined approach by starting daily, weekly, or monthly SIPs (Systematic Investment Plans) in Digital Gold, allowing them to accumulate gold over time.
  9. Ease of Exchange and Investment: Digital Gold can be easily exchanged for physical gold, converted to jewellery, or gifted. The investment process is simple, requiring only a valid phone number, unlike Gold ETFs and SGBs, which require a demat account.

Important Considerations for Digital Gold Investment:

  1. Maximum Limit: Many digital gold platforms impose a maximum investment limit of Rs. 2 lakh for individual investors.
  2. Regulatory Oversight: Since transactions lack regulation by bodies like RBI or SEBI, investor interests may not be fully safeguarded.
  3. Delivery and Making Charges: Similar to physical gold, converting digital gold to physical gold will attract charges related to delivery and making.
  4. Storage Duration: Some platforms may impose a limited storage period (up to 5 years). Investors must decide between taking physical delivery or selling after this period.

How to Invest in Digital Gold on Tickertape?

To buy digital gold on Tickertape, follow these steps:

  1. Login to Tickertape using a valid mobile number.
  2. Navigate to the Gold section on the home screen.
  3. Click on ‘Invest now in Digital Gold’.
  4. Set your investment amount along with the investment plan – SIP or lump-sum.

Conclusion:

  • In the digital age, Digital Gold stands out as a secure investment choice, providing purity, collateral for loans, and eliminating storage concerns associated with physical gold. Despite potential challenges like regulatory gaps and investment limits, its advantages include better returns, full gold investment, leasing opportunities, liquidity, low minimum investment, disciplined SIP options, indexation benefits, and ease of exchange.
  • Investing in Digital Gold can be a smart choice for those looking for flexibility and convenience in their gold investments. Whether you choose Digital Gold, Gold ETFs, or SGBs, understanding your investment goals and preferences will help you make the best decision.

Important FAQs:

What is Digital Gold?

  • Digital Gold is a way to buy and sell gold online in small amounts, starting from as little as Rs. 10.

Which is better, gold ETF or sovereign gold bond?

  • Gold ETFs offer greater liquidity compared to Sovereign Gold Bonds (SGBs) because they can be traded freely in the open market without any lock-in period. This flexibility allows investors to use Gold ETFs for short-term, medium-term, or long-term investment goals based on their preferences.

How can I invest in Digital Gold?

  • You can invest in Digital Gold through various online platforms like Tickertape, requiring only a valid phone number.

Which is better, gold ETF or digital gold?

  • Although Digital Gold and Gold ETFs may appear similar, the key difference is that Digital Gold offers the option for physical delivery, whereas Gold ETFs do not. Choosing between the two ultimately depends on individual preferences and investment goals.

Which is better, sovereign gold bond or digital gold?

  • While both Digital Gold and Sovereign Gold Bonds (SGBs) have their respective advantages and disadvantages, SGBs may be a better overall option. SGBs are easy to purchase and redeem online. Additionally, being backed by the Government of India, SGBs are considered a safe investment choice.

What are Gold ETFs?

  • Gold ETFs are Exchange Traded Funds that invest in physical gold and can be traded on the stock exchange.

How are SGBs different from Digital Gold and Gold ETFs?

  • SGBs are government-issued bonds that offer interest income and have a lock-in period, unlike Digital Gold and Gold ETFs.

What is the minimum investment for Digital Gold?

  • The minimum investment for Digital Gold is Rs. 10.

Are there any charges for investing in Digital Gold?

  • Yes, there is a 3% GST on digital gold transactions.

Is Digital Gold regulated?

  • No, Digital Gold is not regulated by bodies like RBI or SEBI.

Can I redeem Digital Gold anytime?

  • Yes, Digital Gold can be transacted 24/7, providing high liquidity.

Do I need a demat account to invest in Gold ETFs?

  • Yes, a demat account is required to invest in Gold ETFs.

What is the lock-in period for SGBs?

  • SGBs have a lock-in period of 5 years.

Are there tax benefits for investing in Digital Gold?

  • Digital Gold offers long-term capital gains tax at 20% after three years and benefits from indexation.

Can I lease my Digital Gold for additional returns?

  • Yes, Digital Gold can be leased to trusted jewellers, earning an additional 3-4% return.

How is the taxation on Gold ETFs different from Digital Gold?

  • Gold ETFs are taxed at the income tax slab rate regardless of the holding period, while Digital Gold is taxed at 20% after three years.

What are the costs associated with Gold ETFs?

  • Gold ETFs include demat account opening expenses, transaction charges, and an expense ratio for the holding period.

How secure is Digital Gold?

  • Digital Gold on platforms like Tickertape is of 24K purity, reducing the risk of fraud.

Can I convert Digital Gold to physical gold?

  • Yes, Digital Gold can be easily converted to physical gold or jewellery.

What is the interest rate for SGBs?

  • SGBs offer an interest rate of 2.5% per annum.

Is there a maximum investment limit for Digital Gold?

  • Many platforms impose a maximum investment limit of Rs. 2 lakh for individual investors.

What happens if I don't convert Digital Gold to physical gold within the storage period?

  • Some platforms may have a limited storage period, after which you must decide between taking physical delivery or selling the gold.

We hope that you like this content and for more such content Please follow us on our social site and YouTube and subscribe to our website.

Manage your business cash flows and payable/receivables using our Bahi Khata App

Download Bahi Khata
View All