E-gold: A promising new investment option

E-gold or electronic gold is a virtual representation of physical gold. It allows individuals to buy, sell, or hold gold in digital form. Gold has been a highly sought-after asset class for centuries due to various reasons like its rarity, durability, and liquidity. Its role is as a medium of exchange, a store of value, and wealth preservation.

Most people consider gold to be a haven during turbulent times and it provides the perfect hedge against inflation. However, buying and keeping physical gold involves certain inherent risks such as risks associated with its purity, safekeeping, etc.

In contrast, the owning of gold in electronic form is hassle-free. It is very convenient, cost-effective, and highly liquid, without worries about its purity and safekeeping. Virtual gold is 24 Carat and thus comes with 99.99 per cent purity and buyers do not have to worry about purity and genuineness.

Digital gold is one of the newer investment options; hence, it is better to understand the various options available to investors. One of the most popular and common modes is through the gold schemes of Mutual Funds.

One can invest a lumpsum amount or smaller amounts through Systematic Investment Plans (SIPs) for a longer term. This strategy usually gives handsome returns. The units of gold mutual funds can be purchased in paper form or in electronic form (Demat).

Another option is Gold Exchange Traded Funds (Gold ETFs). These ETFs are units representing physical gold which may be in paper or in dematerialized (Demat) form. One Gold ETF unit is equal to one gram of gold and is backed by physical gold of 99.99 per cent purity. This combines the flexibility of stock investment and the simplicity of gold investments. Holdings in demat form are traded freely in the stock exchanges and hence offer much higher liquidity.

In both the above options, when you sell the gold units, you will not get physical gold but the market value of the gold in cash. There are platforms that offer delivery of physical gold, gold ornaments, cash, or a combination of all of these.

A man poses for a photograph with a sample of a gold coin during its launch in Harare, Zimbabwe, July 25, 2022 [Philimon Bulawayo/Reuters]

For example, in India among the various avenues that are available to investors, the most popular one is MMTC-PAM, a joint venture between Switzerland-based bullion brand, PMAP-SA, and MMTC Ltd, a Government of India undertaking.

Using their online platform, one can buy and accumulate gold in smaller quantities and redeem the same at a later date. The gold bought is of 99.99 per cent purity and kept in a secure vault. If needed, one may stay invested for a long period. The digital gold so bought can be redeemed in the form of gold bars, coins, ornaments of the investor’s choice, and in cash or a combination of all of these. Making and other charges are applicable if opted for ornaments.

Now, various platforms are available for the purchase, sale, and holding of E-Gold. G-pay wallets provide a window for E-Gold (type gold locker in search bar) of MMTC-PAL. Paytm, Phone Pay, and other online digital platforms and jewellery merchants have also started offering the purchase of virtual gold.

Several countries of the world issue government securities denominated in grams of gold to allow their citizens to invest in gold. China, Turkey, Russia, South Africa, Singapore, UK, Canada, etc have issued gold bonds that are backed by physical gold reserves.

In India, the Reserve Bank of India issued Sovereign Gold Bonds (SGBs) for the first time in 2015. SGBs are excellent investments in digital gold as they offer capital appreciation, marginal interest income, and tax advantages. Indians can invest annually up to 4 kgs of gold under the scheme.

However, NRIs are not allowed to invest in SGBs due to FEMA restrictions.

Gold is an evergreen investment option. Gold has been successful in providing double-digit returns when invested in the long term. In spite of some drawbacks like the lack of a regulatory body, nominal expenses of acquisition, market risks, etc, E-gold offers unparalleled flexibility, purity and value for money.

So, investment in E-gold may be considered as a modern and convenient alternative to physical gold and it is an excellent opportunity to diversify your investment portfolio while preserving the timeless appeal of this precious metal.