Investing in Gold: Digital Gold, ETFs, or Traditional Jewellery?
Gold has long been viewed as a safe haven for wealth, especially during periods of uncertainty. Today, the key consideration for investors is not whether to invest in gold, but rather how to do so effectively. Options such as digital gold, gold ETFs, and traditional jewellery each come with their own set of costs, risks, and benefits.
In India, physical gold jewellery remains the most conventional method of ownership, often intertwined with cultural and emotional values. It is commonly purchased during festivals and weddings. However, from an investment perspective, jewellery is often the least efficient choice due to additional making charges and taxes that inflate the initial purchase price. When selling, these costs are rarely recouped, alongside potential deductions that may apply. Rohan Goyal, an Investment Research Analyst at MIRA Money, noted that purchasing jewellery can be one of the priciest ways to acquire gold, with GST charges around 3% in addition to making charges that can range from 8% to 25%, significantly impacting returns.
Digital gold has surged in popularity in recent years, largely due to its convenience and accessibility. Major platforms like PayTM and Amazon allow users to buy digital gold online easily, with the gold typically stored in secure vaults managed by the provider. However, the lack of regulation by a central authority in India raises concerns about safety and transparency. While digital gold may attract short-term investors due to its ease of transaction, it carries counterparty risks.
Gold Exchange Traded Funds (ETFs) offer a more regulated and structured investment avenue. These funds trade on stock exchanges and reflect the price of physical gold, allowing investors to buy and sell units similarly to shares. With oversight from the Securities and Exchange Board of India (SEBI), ETFs provide greater transparency and protect investors. They also alleviate concerns regarding storage and purity, though investors need a demat account and must pay a small expense ratio.
Investors must consider their objectives when choosing between these options. Digital gold is appealing for those seeking convenience and small investments, despite its regulatory gaps. In contrast, ETFs are favored by those who prioritize security and market alignment, while jewellery primarily serves as a consumption asset rather than a pure investment. Aditya Modak, COO & CFO of PNGS, emphasized the behavioral aspect, noting that the ease of buying and selling digital gold might lead to increased trading activity, potentially undermining long-term investment benefits. On the other hand, tangible assets are generally perceived as long-term investments to be liquidated only when necessary.
For those focused on investment efficiency and transparency, gold ETFs are often the superior choice, as they closely track market prices and are regulated, eliminating storage and purity concerns. Digital gold allows for small, incremental investments but lacks formal oversight. Meanwhile, physical gold, particularly jewellery, continues to hold cultural significance, though its effectiveness as an investment is diminished by added costs. Adhil Shetty, CEO of BankBazaar, noted that while gold ETFs provide transparent, market-linked exposure without storage worries, jewellery should be regarded as a consumption good due to unrecoverable making charges. Dr. Renisha Chainani, Head of Research at Augmont, added that while digital gold can be suitable for small, ongoing investments, financial gold options like ETFs remain more efficient for long-term wealth accumulation.
