Not only is physical gold much sought after, but digital gold is quickly becoming the preferred choice due to its convenience and affordability. India's love for the yellow metal has little parallel in history. That love is extending to new geography as buying digital gold online is catching on over the last few years.
The government's push for digital payments, expanding digitalisation, ease of buying gold online and, lately, inflation has made people opt for investing in modern forms of wealth such as digital gold.
Digital gold provides investors with the same advantages as owning physical gold without having to verify its quality or worrying about security. It eliminates any dip in returns due to the diminishing value of gold when used in jewellery.
Digital future of gold
In India, the landscape of investing in gold is changing from traditional physical forms to digital formats. This shift has been seen through the increased number of gold-based Exchange Traded Fund (ETF) portfolios, which has grown 15X in four years. India has also seen 61 tranches of Sovereign Gold Bonds (SGB) since 2015. The last tranche of Sovereign Gold Bonds, which was opened for public subscription was valued at an issue price of Rs 5,409 per unit.
Investing in SGB has become the favoured digital mode of investing in gold due to attractive benefits such as tax-free maturity returns and periodic interest pay-outs to bond holders. Digital mode is the way ahead for such investments.
RBI launched SGB in 2015, while gold ETF had been available since 2007. Despite its late entry, SGBs gold holdings at 96.28 metric tonnes is 149 per cent higher than the ETF holdings of 38.6 metric tonnes, according to RBI data.
Between September 2018 and November 2022, the number of gold ETF folios in India, as per the Association of Mutual Fund of India, increased by a multiple of 15 times - from 3.1 lakhs to 46.67 lakhs. At the same time, all 11 active gold ETF schemes saw an increase of 156 per cent in combined holdings, from 15.1 metric tonnes to 38.6 metric tonnes. The ETFs are all backed by physical gold reserves, offering inherent confidence to the investor.
The growth reflects how retail and high-net-worth investors have become increasingly drawn to digital assets such as SGBs and ETFs due to their convenience, compared to owning physical gold.
Gold ETFs rising
The holdings of gold ETFs in India are rising, but they only make up 1.1 percent of the global ETF holding of 3,477 tonnes. Additionally, the combined holding of Indian digital gold assets in the form of SGBs and ETFs is about 134.88 MT, or just 3.88 per cent of the global ETF holding.
India's demand for physical gold is significant on a global scale, despite its limited digital gold assets. In 2019, India imported 21 per cent of all the gold mined worldwide, although this figure decreased in 2020 due to the COVID-19 pandemic. India's gold imports surged in 2021 to a record high of 984 metric tonnes and had continued to remain strong in 2022 as well. Till September 2022, 515 metric tonnes of yellow metal had been imported.
Investing in physical gold remains far more popular than digital gold, yet there is great potential for growth in the digital gold market. Besides SGBs and ETFs, gold-focused mutual funds offer another option to invest digitally in gold. The lustre of gold and the ease of online investment could add a new sheen to investors' portfolios.
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( With inputs from ANI )
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