Digital gold is a new concept of buying, selling, and holding 24K gold online without the need to physically handle and store gold. It is ideal for small investors, first-time buyers, and anyone looking for the convenience of digital payments. In this article, we will discuss what digital gold is, how it works, its features, and what you need to know before investing.
What Is Digital Gold?
Digital gold allows you to purchase actual gold in small quantities, sometimes as low as 0.001 grams, using mobile apps or online platforms. When you purchase digital gold, the online platform buys an equivalent amount of physical gold (which could be 99.5%, 99.9%, or 99.99% pure) and stores it in a secure, insured vault. You receive a digital receipt reflecting your ownership, and you can sell it back at any time or even receive physical gold if the platform supports it.
How Does Digital Gold Work?
Hereโs a simple step-by-step guide to how digital gold works:
- Choose a Platform: Pick a trusted app or website. Complete the KYC process and create an account.
- Decide How Much to Buy: You can buy gold in grams or rupees, starting with small amounts.
- Place Your Order: Review the gold price and place your buy order.
- Make Payment: Pay via UPI, netbanking, or other digital methods.
- Gold is Purchased and Stored: The platform buys physical gold and stores it in an insured vault in your name.
- Track Your Investment: Your digital gold balance is updated, and you can track it in real time on your account dashboard.
- Sell or Redeem: You can sell your digital gold for cash or redeem it for physical gold (subject to minimum quantities and extra charges).
What You Actually Own
When you make a purchase of digital gold, you wonโt receive a particular coin or bar. However, you will receive the right to a certain amount of physical gold that is stored in a third-party vault. The company will be responsible for keeping the gold safe for you. You will receive a bill or receipt that contains information such as the date of purchase, weight of gold, price per gram, and the amount paid. This will act as proof of ownership. Each transaction will have a reference ID that can be used for tracking and reference purposes in the future.
Key Benefits of Digital Gold
- Fractional Buying: Buy gold in small amounts, even fractions of a gram.
- Live Pricing: Prices are updated frequently and reflect current gold rates.
- Metal Purity: Most platforms guarantee high purity (99.5%, 99.9%, or 99.99%).
- Liquidity: Sell your digital gold back to the platform anytime, often 24×7.
- Insurance and Storage: Your gold is stored in secure, insured vaults.
- Optional Physical Delivery: Some platforms let you redeem digital gold for physical bars or coins (subject to minimum weight and extra charges).
Costs Associated with Digital Gold
- GST: A 3% GST is charged on the purchase value, just like physical gold.
- Platform Spread: The buying price is higher than the selling price, covering storage, insurance, and platform costs. This spread means the gold price must rise enough for you to make a profit.
- Redemption Charges: If you want physical delivery, there may be minting and delivery charges.
Digital Gold vs Other Gold Options
| Feature | Digital Gold | Physical Gold | Gold Mutual Funds | Gold ETFs |
|---|---|---|---|---|
| Ownership | Contractual/entitlement | Direct possession | Fund units | Fund units |
| Regulation | Not regulated | Not regulated | SEBI regulated | SEBI regulated |
| Minimum Amount | Very low (fractions of gram) | Higher (making charges) | Depends on fund | 1 unit |
| Physical Delivery | Sometimes possible | Yes | No | No |
| Liquidity | High (24×7) | Lower | High | High (market hours) |
Digital Gold Taxation
Digital gold is taxed like physical gold. If you sell within 24 months, short-term capital gains tax applies (as per your income tax slab). If you hold for more than 24 months, long-term capital gains tax is 12.5% without indexation.
Conclusion
Digital gold is a convenient and flexible way of investing in gold without the need to worry about storage and purity. It is ideal for small savers and new investors who are looking for the convenience of digital payments. However, since it is unregulated, you will have to select a reliable platform and be aware of the associated costs and risks. It is always important to compare digital gold with other regulated investments such as Gold ETFs or mutual funds.
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