This festive season, don’t be shocked if your good old jeweller offers you an app link to purchase digital gold instead of gold coins.
So far, only government-accredited gold refiners such as MMTC-Pamp, Augmont and SafeGold offered digital gold through tie-ups with financial service providers and jewellery brands.
Now, some jewellers have launched their own versions of digital gold, where third-party checks and balances of a custodian – who ensures the equivalent gold is stored in vaults after a customer’s digital purchase – might be missing.
“Digital gold currently is being offered through third-party tie-ups. But since we have a good net worth, we are offering our own digital gold, which is paper gold and silver. The buyer receives a physical certificate sent by post,” said C Vinod Hayagriv, managing director of C Krishniah Chetty Group of Jewellers in Bengaluru.
An app builder has helped C Krishniah Chetty Group and 70 other jewellers from east India and Maharashtra to offer digital gold.
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“There are a few jewellers from Kolhapur, Akola and others who were keen on offering this form of gold accumulation. When financial distributors can offer it, these are jewellers who have been dealing in gold for decades together,” said Sanju Khushlani, founder of InstaLaxmi.com, which helps jewellers by building a backbone to offer digital gold.
The motive
Jami Asish, a jeweller who runs Jami Bhimaraju & Brothers in Berhampur, Odisha, told Moneycontrol that he is considering launching a digital platform for small gold buyers who may not immediately have the funds to purchase a necklace. It will help them to accumulate gold incrementally.
“Whenever they have a surplus, they can keep adding 1 gram, 2 grams, 4 grams and fulfil their gold-buying dreams,” Asish said during a visit to a gold business meet in Mumbai.
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However, the concern with jeweller-led digital gold offerings is that one cannot be sure whether the gold bought has actually been purchased and stored in a vault. This is especially so because the Indian government has increased import duty on gold to 15 percent to curb imports and conserve foreign exchange reserves.
India imported 1,050 tonnes of gold worth $55.7 billion in 2021, more than double the 430 tonnes it imported in 2020. The value surpassed the previous record of $53.9 billion set in 2011.
Gold refiners claim that the gold is stored in vaults overseas, thereby saving on import duty charges and yet offering price appreciation and ease of online buying and selling.
However, when digital gold that is purchased from jewellers is converted to a jewellery purchase later, it will be subject to the prevailing costs and gold rates.
“A 3 percent GST is levied twice – once when digital gold is “sold” to the consumer and again when the jeweller sells the finished jewellery to the consumer on the final value,” said Hayagriv.
The conversion to jewellery after a digital gold purchase has been one area of interest from jewellers to offer this product.
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What he means is that Digital gold is essentially a gold-buying product. But you do not get to buy gold instantly by giving cash. Think of it like a mutual fund's systematic investment plan where you buy fixed quantities of gold, digitally, every month. Subsequently, an amount of gold is kept aside for you every month. At the end of, say, 12th month, your accumulated money allows you to buy physical gold or gold jewellery that had been kept aside all this while. In other words, the so-called SIP buys you gold jewellery of an equivalent (accumulated) amount at the end of the tenure. That’s the attraction of digital gold for some. ETFs, on the other hand, just offer money on redemption, just like a mutual fund or stock.
“Gold ETFs don’t offer physical, tangible gold after redemption and one has to go to a third party to convert the digital or paper gold into jewellery,” said Vinita Gupta of RBC Jeweller in Zaveri Bazaar.
If the ultimate goal is to buy jewellery, you would be better off either accumulating funds or opting for gold accumulation plans.
Under gold accumulation plans or gold savings plans offered by jewellers, there are limits placed on all private limited companies. Only up to 25 percent of a company’s declared net worth can be offered by way of a gold savings scheme or accumulation plan. These should not be valid for more than 11 months.
No regulations
Another way of accumulating paper gold is through sovereign gold bonds or gold exchange traded funds (ETFs).
“While conceptually, digital gold looks consumer-friendly as there is no storage or purity hassle, small gold investors should treat these with caution as there are no regulations around these digital gold offerings,” said Raj Khosla, managing director of financial advisory MyMoneyMantra.
The Securities and Exchange Board of India barred stock brokers from distributing digital gold in August 2021. But gold purchases do not currently come under any regulations and digital gold is much like cryptocurrencies as far as evolution of regulations is concerned.
Better to stay safe than sorry.
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