Novel Sovereign Gold Bonds vs Digital Gold: Which way to go ahead?
Following the Covid-19 crisis, investors have reoriented their attention to a wide range of asset
types.
According to experts in the field, they include non-physical precious assets such as digital gold
and
Sovereign Gold Bonds.
Like gold, digital gold may be used as money, but it doesn't have any additional complications of
safety and
maintenance. Gold purity is never compromised. 3 businesses now in India, namely Augmont, MMTC-PAMP,
and
SafeGold, hold equal quantities of gold bullion in physical vaults that are guaranteed. Buying
digital gold
is as simple as purchasing tiny quantities on different internet sites, although the maximum
purchase is Rs
2 lakh. The majority of service providers contain a provision mandating an obligatory departure or
one
stipulating that transfer of the physical gold must occur after a specific length of time.
As the Central government's chosen issuer, the RBI makes SGBs available to the public at a concession to the
current market price for an 8-year holding term. It is advocated that retail investors make use of these
financing options, which may help fulfill people's aspirations and developmental stability by allowing them
to acquire gold.
As founder and CEO of Digital Swiss Gold and Gilded, Ashraf Rizvi believes that digital gold offers greater
benefits to customers than SGBs. You are getting the actual worth of the gold that is held in a vault,
rather than purchasing an IOU. Unlike SGBs, digital gold offers the assurance of fair repayment invested. A
big distinction is a liquidity. The primary concern with investing in SGBs is the holding term. SGBs have a
minimum holding period of 5 years, so if an investor doesn't have time to wait for the investment to grow,
it would be inaccessible for prompt financial or monetary demands.
But, Digital Gold is available 24 hours a day, 7 days a week. One option is to buy a huge amount in one go,
and the other is to purchase smaller amounts over time, based on his or her financial capacity. While
digital gold's gold quality is at 0.9999, that of SGB's is at 0.999.
There are no processing fees or GST taxes on SGB. On the other side, digital gold costs 3% GST, which
implies the net capital paid is Rs 97. As well, the purchase and sale prices are about 2-3% apart, with
storing, insurance, and trustee costs adding on another 2-3%. Also, 2.5% per year interest is paid on SGB.
For SGB to properly develop, even after the five-year hold period has ended, it requires an additional 3
years. When transferring digital gold, there are no extra expenses or deductions. However, there are high
transaction fees when bonds are traded before maturation. The maximum deposit on these was capped, and the
enrollment period is limited with the Sovereign Gold Bonds.
Also, Bansal makes a parallel when he notes that "digital gold" is taxable like real gold, although the
capital gains tax is not applied to SGB holdings held for five years or longer after purchase in the IPO. A
disadvantage of SGB is the 5-year lock-in term. When investors have held shares for between five and eight
years, they can resell in the open market at a discount. However, the digital gold marketplace lacks a
central regulatory body, and Sovereign Gold Banks have a sovereign guarantee.
Conclusion
Convenience, expenses, projected return, taxes, liquidity, and safety are all important characteristics of
different long-term assets, such as digital gold. One of the most appealing features of SGBs is the 2.5%
interest rate and tax-free status. To summarize, it all depends on the position that you are willing to
take.
Edited by : Vishwajitha
