Wish To Invest In Digital Gold: Here Are Risks, Costs, and Taxes Related To The Asset You Need To Know

Gold has been one of the top traditional investment assets for Indian households. According to a report by Kotak Institutional Equities, gold holdings with Indians have neared a massive $5 lakh crore worth of assets, with the value of the precious metal comprising around 65 per cent of non-property wealth.

Gold prices have also surged over 60 per cent in the past year, with the combined effect of geopolitical uncertainty and volatility in equity markets leading investors to bet on the safe-haven asset. Gold futures on the MCX are currently trading at Rs. 1.54 lakh for 10 grams.

While traditional gold buying through jewellery, coins or bars, etc., has remained as the top investment choice, more people are also looking at other alternatives such as gold exchange-traded funds (ETFs), mutual funds, as well as digital gold as investment options.

What is Digital Gold?

Digital gold is an investment option, providing investors a way to invest in gold online without physical delivery of the asset. It is a secure way to invest in 24 karat gold, where the issuer stores your purchases in a vault on your behalf, and a highly liquid investment option.

It is important to note in this context that digital gold is not regulated by the Reserve Bank of India (RBI) or the Securities and Exchange Board of India (Sebi). However, digital gold is subject to the same tax rules as physical gold.

When it comes to the sale of digital gold, returns on digital gold held for 2 years or longer will be taxed under long-term capital gains (LTCG) at 12.5 per cent, along with cess. If the digital gold has been held less than 2 years, it is taxed under short-term capital gains (STCG), with the tax rate according to your income slab.

One of the foremost benefits of buying digital gold is that you can start investing even at Re 1, depending on the asset company chosen. Digital gold, like physical gold, is a liquid asset, and can be bought or sold even without a demat account. It is also easy to store, as you are not required to take physical delivery of the gold you bought, with some asset managers also providing the option to convert your digital gold to physical gold.

Key Things to Keep in Mind before Investing in Digital Gold

Before making any investment decision, every investor should conduct their own due diligence. Check the fine print and understand the terms properly before investing. It has been mentioned that digital gold falls under a grey zone with respect to regulations, and is a self-governed investment, which could turn out to be a high-risk investment for ordinary investors. Digital gold does not give investors any fixed interest; the returns can only be realised at the time of sale of the asset.

In India, buying digital gold also attracts a 3 per cent charge of GST, the same as physical gold. Additionally, your asset managers could also charge a platform fee and the cost of storage, insurance and logistics for the gold asset.