Should You Consider Digital Gold over Sovereign Gold Bonds?

Recently, the second tranche of the Sovereign Gold Bond (SGB) scheme opened up for a public subscription at the issue price of Rs 4.842 per gram. The scheme will be issued by the government in six tranches from May to September 2021. Many investors are grappling with the decision of investing in different financial assets, with SGBs being one, to ensure they are not only earning profit from the investment but also safeguarding their wealth amidst the ongoing pandemic. SGBs are linked to gold’s market prices and offer additional returns to investors. 

Gold bonds have seen traction lately during the Covid-19 pandemic due to it being a safer and convenient way of investing in gold in a non-physical form. 

While sovereign gold bonds represent a viable method to access the return performance of gold, these financial instruments do have limitations when compared to real digital gold – physical gold that can be bought, sold, sent, or gifted right on your mobile device.

Gold bonds are often considered to be a form of digital gold, although, unlike digital gold, they are not attached to actual physical gold. It is important to remember that real digital gold is fully allocated. It is not a representation of the returns on gold, but the actual gold itself. Investors own a specific gold bar or a portion of a specific gold bar. Unlike sovereign bonds, digital gold is fully insured.

The biggest advantage of digital gold arises if an investor needs funds for an emergency or opportunity. Sovereign bonds are restricted and must be held for a minimum of five years. Even after the five years is up, the bonds only mature after 8 years. Selling before maturity comes with hefty transaction costs. Digital gold can be accessed 24/7 with no additional fees in one of the most liquid and actively traded markets in the world.

The SGB scheme presents additional structural limitations that affect some investors. For example, the scheme is only open for a brief window. In cases where funds become available after a given window closes, the scheme will not be a realistic option. Also, the scheme limits large investors to a 4kg maximum. While this only affects a fortunate few, it represents another limitation not faced by the digital gold investor.

Finally, the price can matter. The sovereign gold bond scheme fixes price, and while there is a 50 rupee discount to those making purchases online, with day-to-day movements in price, there are times when gold can be had for a cheaper price by accessing real digital gold.

Keep in mind that the SGB scheme dictates the gold quality to be at .999, a high standard indeed. Digital gold quality is even higher at .9999.

The pandemic has shifted Indians’ preference towards digital goods, digital gold being one of them. Gold has always been seen as a haven due to it being less volatile than other investments. With higher quality for a better price and with easier access to one’s investment, digital gold is worth considering for long-term investment.

The author is Founder & CEO, Digital Swiss Gold, and Gilded

DISCLAIMER: Views expressed are the author's own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.