Dhanteras 2024 is around the corner, and Indian customers will be looking to buy gold. This festival, which signifies the purchase of gold, silver, and brass in the form of jewellery or utensils, holds a special sentimental value for consumers.
Many consumers would consider their options for purchasing gold, a traditional ‘safe-haven’ investment believed to bring wealth, prosperity, and good fortune. However, there has been a notable shift in the purchase of gold as an asset by people. A recent survey by Moneyview, a financial services platform, reveals that nearly 65 per cent of millennials prefer ‘digital gold’ investment due to its ease of access and convenience.
With the growing popularity of digital investment platforms, the age-old tradition of buying physical gold now has competition in the form of digital gold. Understanding the advantages and disadvantages of both physical and digital gold is important to make an informed decision this festive season. Let’s understand some key pros and cons of both these options for buying gold:
Physical Gold: Advantages & Disadvantages
1. Traditional Appeal: Indians who are swayed more by the traditional appeal of keeping gold at home or in safety vaults as an asset purchase physical gold in the form of jewellery or bricks.
Good: For many families, purchasing physical gold during Dhanteras signifies specific cultural rituals and sentiments. It provides a sense of security to them because gold is kept in their possession.
Bad: However, the physical nature of gold brings concerns like storage and safety. The risk of theft or damage makes it crucial to invest in secure storage options, which can add to the overall cost of ownership.
2. Liquidity And Accessibility: Physical gold is widely accepted and can be easily converted into cash in your nearby local markets.
Good: This makes it a convenient option for those looking for liquidity in emergencies.
Bad: Despite its liquidity, selling physical gold often involves a process that includes valuation and can sometimes result in losses due to purity or current market rate differences. Moreover, buying and selling physical gold often comes with making charges and GST, which can erode returns.
3. Long-term Value: Gold, when kept in physical form, is considered a ‘stable’ asset that is stored over decades.
Good: This provides investors with a hedge against inflation and economic uncertainties.
Bad: However, the investment return depends on the market value and not the growth of the asset, meaning it would grow relatively slowly compared to other financial assets. It also does not generate any passive income like interest or dividends. The long-term appreciation depends heavily on gold market prices, which are bound to fluctuate on a daily basis.
Digital Gold: Your Modern Alternative
The Moneyview report shows a growing shift among younger investors, particularly among those under the age of 35. The majority in this age group, over 75 per cent, have a growing preference for digital gold platforms for their gold investments.
1. Convenience: The report noted that young investors are choosing digital gold because of the convenience it allows to buy, sell, and store gold online through platforms.
Good: This eliminates their concerns regarding the storage facility and security since the gold is purchased online and stored in digital vaults by the provider.
Bad: Despite this ease, there are some associated concerns with this kind of investment. The trustworthiness of the platforms and the concern about whether they are adhering to regulatory norms can be worrying for some investors. Therefore, it is important for investors to carefully evaluate the platform they are choosing.
2. Cost Effectiveness Of Purchase: Many young investors who do not have enough money to buy gold in the form of jewellery or bricks find the digital gold alternative much more feasible.
Good: The survey report says investors prefer the cost-effectiveness of starting an investment in gold with as much as Rs 10. Investors can buy gold in small quantities such as one gram - starting with limited budgets and then expanding when wealth grows.
Bad: Even though digital gold allows such flexibility, it often comes with charges for storage or account maintenance depending on the platform you choose. If you want to convert the digital gold into physical gold there may be some charges associated with the same.
3. Liquidity & Exposure To Market: Digital gold is much like a market-linked investment which you can tap into whenever the market seems favourable in terms of your investment.
Good: It will offer you the ease of liquidity since transitions can be completed online in a day without you having to visit a jeweller. Digital gold investors can buy or sell instantly at market prices, making it an attractive option for those who want to take advantage of market fluctuations.
Bad: However, digital gold may not be ideal for those who prefer to keep their assets tangible and are not comfortable with online deals of gold. Moreover, unlike other gold investment products such as gold ETFs, digital gold still lacks key regulatory oversight which can be considered as a risky ordeal for many investors.
What Should Be Your Choice?
If the tangible and sentimental value of keeping gold is more important to you then physical gold stands as the best option. However, if, like millennials, you prefer the convenience of e-gold investments over keeping the physical asset, digital gold would be the comfortable choice. Moreover, those who do not have the significant upfront money required to buy physical gold can start with a small digital gold investment with an intention to grow the same over time.
A balanced approach to holding both physical and digital gold would also allow investors to benefit from the security of physical assets while leveraging the flexibility of digital investments.
