Digi Gold India: Can It Add Value To Your Portfolio?
Although gold has proved to be an excellent investment time and again, purchasing it can be a Herculean task. Firstly, gold prices are highly volatile. Secondly, the demand for physical gold has spiked lately, and investors, both new and old, want to invest in gold to shield themselves against the economic turmoil, thereby, resulting in a gold rush and subsequent gold shortages. This is why the price of gold has risen significantly higher than the spot price, which has made it almost impossible for people with limited means to invest in it despite its many advantages. In this piece, let’s have an insight into Digi Gold India.
Digital Gold
This is where Digital Gold or Digi Gold can come to the rescue.
Digi Gold is a virtual way of purchasing and investing in gold without actually holding it. Just as secure as purchasing physical gold, Digi Gold offers an extremely innovative and simple way of purchasing gold via digital channels. Also, it addresses the issues of purity and storage that come with buying physical gold as it is purchased online and is stored in insured vaults by the seller on the buyer’s behalf.
Why go Digital with Gold Purchases?
Holding physical gold does come with its share of drawbacks. It requires one to buy gold in multiples of 1 gm, which is equivalent to approximately INR 5,320. On the other hand, users can buy digital gold for as little as Re 1. Also, selling physical gold would require a trip to a trusted jeweler.
On the other hand, Digi Gold can be purchased through online platforms. The rapid penetration of smartphones and the internet in rural areas means that gold can also be accessed by the rural population in digital form. Rural India accounts for two-thirds of India’s gold demand as people use it as a store of wealth. Combined with its close affinity to gold assets and access to the internet, rural India is emerging as a major market for digital gold purchases. Hence, the scope and potential of digital gold are not merely restricted to the urban areas but have transcended to India’s rural parts too.
How is Digi Gold Different from Gold ETFs?
While digital gold offers an alternative to physical gold, gold ETFs involve investing in physical gold of 99.5% purity where fund houses source it from banks and are approved by the RBI. Unlike digital gold which can be directly purchased online from the seller or authorized partners, gold ETFs are listed on the stock exchange and can be bought and sold via a Demat account. Also, the minimum investment required for a gold ETF is 1 unit, which is 1 gram of gold.
Moreover, if someone wants to sell their digital gold, they can do so anytime at the prevailing rates by selling it back to the seller just like they had purchased it. On the other hand, they can redeem gold ETFs by selling them on the exchange via the Demat account.
Since gold holds immense sentimental value for Indians, especially in rural areas, it is understandable that various online platforms like PhonePe, Google Pay, Paytm, Finvesta, MMTC-PAMP and SafeGold have emerged over the last few years that enable online gold purchases. Considering the sharp increase in online transactions in rural India, it is not surprising that digital gold has also found significant traction in the countryside.
Also, most digital platforms that facilitate its purchase and sale have several checks and balances in place in the form of a security trustee as well as an independent custodian. This ensures the safekeeping of customer gold balance. Therefore, Digi Gold India offers people a highly reliable, profitable, and safe investment option.
How Can FinTech and Digi Gold Empower the Poor
FinTech, combined with digital gold, can revolutionize the financial world and allow the financially marginalized sections of society to have a stake in the economy. Since mobile apps and digital platforms allow users to buy and sell gold in the smallest denominations, it can help people even with limited means to invest in digital gold. This can significantly help in reducing the gap between the banked and the unbanked by bringing more people under the banking and financial services umbrella.
Moreover, as FinTechs and neobanks don’t have rigid operational structures like traditional banks, they can ease loan procurement against gold for people who own digital gold. These loans can come in particularly handy for smoothening household consumption and for repaying previous debts and other productive purposes.
Also, linking digital tokens with precious metals, especially gold, allows trades in smaller increments and significantly reduces the cost threshold for users in accessing investment and financial services. These gold-linked tokens, which are redeemable in physical form, can grow exponentially in Asia due to the population’s affinity for gold and the rising demand for online investment options.
What Challenges Does Digi Gold Face Towards its Adoption as a Viable Investment Option?
Although Digi Gold has several advantages over physical gold, it faces a few challenges as far as its adoption is concerned, especially in rural areas. The biggest impediment to its adoption as a viable investment adoption is the lack of awareness about its investment benefits and people’s emotional attachment to physical gold. The lack of information about gold-related schemes by the Government such as the Gold Monetization Scheme (GMS), Sovereign Gold Bond (SGB), and the Indian Gold Coin Scheme has further hindered acceptance at a broader level.
Also, the informal gold market that consists of pawn brokers and local money lenders has a much larger presence in the overall gold loan market. The cumbersome and time-consuming process of applying for gold loans from the formal sector has also hampered the growth of the formal gold loan industry. However, this is where neobanks, in consonance with digital platforms, can encourage and boost the adoption of Digi Gold, not only as an excellent investment option but also as ideal loan collateral, through their flexible loan schemes.
With the global economy in a tailspin, gold can act as a safety net and be used as a hedge against growing inflation. This will prove most beneficial to the underprivileged sections. Therefore, it’s high time that people from the lowest strata of society are enabled and encouraged to invest in gold as, during uncertain times, gold truly shines!
Keywords: Digital Gold, Digi Gold, Investment
