How Safe Is Buying Digital Gold?

What Is Digital Gold ?

Digital gold as the name suggests involves buying gold through an online mode and thus saves you from a visit to a jeweller near you. Also, through the mode, you can buy into the gold of good grade i.e. 24K (995 fine) gold for as less as Rs. 100 and accumulate your holdings in gold in a secured and insured vault.
Also, the investment in gold that is bought through the digital route can be offloaded at any time and from anywhere at market-linked selling rate in just a few clicks.

Advantages of Investing In Gold Through Digital Route

No concerns when it comes to quality as gold with 99.5% purity is offered
Convenience of buying through the online route
No issues with respect to high making charges, storage costs etc.
Affordability as you can accumulate gold over the years with as less as Rs. 100
Transparency, flexibility as well as high liquidity
Another big positive of buying digital gold is that is cheaper than buying gold in physical format from a retail store. As digital gold involves a cost of just 1.5-2.5% over the landed price whereas for physical gold it is usually 4.5%.

How Digital Gold Buying Is Processed?

As and when you make the payment to purchase digital gold, gold units are allocated to you into the vault managed by the issuer. And the insurer or trustee provides guarantee or sorts of protecting the buyer of digital gold from any kind of risk of default by the issuer. But the practice is not mandatory and anytime you can be exposed to a default by the company issuing digital gold.

Is Buying Digital Gold Safe For Customers?

As per experts if the investment does not include a self-regulatory mechanism it can in a manner of time turn out to be the biggest Ponzi scheme in India. So, the need of the hour is to have in place a regulatory mechanism or infrastructure for digital gold as else customers will have no recourse in case of default.
Also, there can be instances where buying through digital route is promoted as part of government-backed gold monetization initiative and lure customers with an interest rate of 2.5% for their gold deposits and making them believe that their held units are safe in gold.
So, the article hints at the threat also with buying into digital gold as the issuers managing your digital gold as in the Indian context are operating under the shop and establishment Act and are not covered under any mandated regulation.

Ways That Can Be Incorporated To Render Digital Gold Safe For Customers

There can be a gold grammes account in place which needs to be managed by the depository participant similar to a demat account. And issuer or managers of digital gold need to be a member of the depository. Further, the trades by the consumer i.e. buying and selling of digital gold should be managed only via a precious gramme account. Once a regulation is in place, units of gold in whatever format will be standardized.
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