Physical gold vs digital gold: Which one should you prefer?

Pranati Deva
Updated: 13 Dec 2021, 05:10 PM IST
TL;DR.

Gold is considered one of the safest and most secure forms of investment options. Whether it is digital gold or physical gold, a portfolio with gold as an asset is considered healthy.

Be it digital gold or physical gold, gold is considered a safe asset for your portfolio

Be it digital gold or physical gold, gold is considered a safe asset for your portfolio

Gold investments have always been in demand and while physical gold has been a trusted tool for more than a century, digital gold is slowly gaining focus. While both have pros and cons, let's take a look at which one is safer:

Gold also improves the overall portfolio performance as well as hedges against inflation and volatility. It is also a valuable diversification tool and provides robust returns in the long term with minimal risk.

While physical gold has been considered an investment instrument for over 100 years, digital gold is slowly catching up. It is an alternative to physical gold and is proving to be an equally efficient and effective means of investment.

While physical gold comes mostly in form of jewelry, coins, bars, etc, digital gold is stored in e-wallets and available online in various forms like Gold ETFs, Gold bonds, etc.

Both digital and physical have pros and cons of their own which must be carefully considered before arriving at one as an investment tool.

Let's take a look at the key differences between these two:

Storage: This is one of the biggest advantages of digital gold. No storage space is required in the case of digital gold as opposed to physical gold. While storing physical gold one has to be worried about safety which leads to storage costs like safe deposit boxes at banks or storage safes/lockers at home.

Minimum investment: Investment in digital gold could start in smaller amounts and can be as low as 100 since there are no minimum purchase limits on digital gold. Meanwhile, the minimum investment in physical gold is higher. Gold coins come with a minimum weight of 10 grams. Also, jewelry has extra making costs attached to them, increasing the overall amount of investment.

Quality: In the case of digital gold only 22 or 24 karat gold is possessed by an investor. There are no hassles of trademarks to define the quality of gold. However, in the case of physical gold, if not bought by a licensed dealer could be diluted or unpure. The purity of gold can be questioned in the case of physical gold but never in the case of digital gold.

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Digital gold vs physical gold: Which one should you prefer

Liquidity: It is easy and hassle-free to sell both digital and physical gold. Like gold coins and bars can be quickly redeemed similarly the digital gold can also be easily cashed out.

Tax: Both digital and physical gold enjoy the same taxation charges. Returns from any investment in gold will be charged as per the individual's income tax slab if held for less than 3 years. While in the case of over 3 years, the tax rate is 20 percent with indexation benefits.

Loan against investment: Both physical and digital gold can be used as collateral to avail loans.

Security: With physical gold, there is always a risk of theft which is minimized in the case of digital gold.

While investment in physical gold will never go out of fashion, digital gold appears to be a little safer. Physical gold should be preferred more for consumption like jewelry however for investment purposes digital gold is a better way to go.

First Published: 13 Dec 2021, 05:10 PM IST
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