What Is Digital Gold? Meaning, Features, and How It Works

Digital gold refers to buying 24K gold digitally, with a corresponding physical quantity of the metal stored in an insured vault by the service provider or vaulting partner. There are several apps and platforms where you can buy and sell digital gold anytime, with small ticket sizes and more convenience, bypassing issues with purity checks and physical handling.

The best part is that you can buy in small denominations, making it ideal for first-time investors, small savers, and those who prefer the convenience of online transactions over purchasing physical gold. 

However, it is important to remember that digital gold is not currently regulated by authorities such as the Securities and Exchange Board of India (SEBI) or the Reserve Bank of India (RBI), unlike Gold ETFs (exchange-traded funds) and other market-linked assets. This means investors largely rely on the platform's and its vault partners' credibility, as there are no uniform regulatory requirements for disclosures, capital adequacy or frameworks for investor protection.

What is Digital Gold?

Digital gold is the modern way to buy, sell, and store 24-karat physical gold electronically, without the buyer having to hold it physically. When you buy digital gold, you are actually purchasing gold that is stored in a secure vault by the platform or its vaulting partner.

You can purchase specific quantities measured in grams or even fractions of a gram (as low as 0.001 grams on some platforms) or invest a rupee amount equivalent to the prevailing gold price in the market. Prices are displayed transparently and are linked to domestic gold rates, which broadly track international spot prices with applicable taxes and margins. 

Once payment is received, the provider purchases an equivalent amount of physical gold (usually with a purity of 99.5%, 99.9%, or 99.99%) and stores it in a secure, third-party, insured vault. 

The buyer has the beneficial ownership of the gold, while the provider is responsible for managing its security and storage. Here, liquidity is relatively high, as you can sell the gold back to the provider at the platform's quoted prices at the time.

You can also choose to convert digital gold into physical gold bars or coins, subject to minimum redemption quantity requirements, minting charges, and delivery costs. 

How Digital Gold Works

Here is a step-by-step overview of how digital gold typically works: 

Step 1: Choose a trusted app or portal. Complete the Know Your Customer (KYC) process and create an account.

Step 2: Choose the amount you wish to buy in rupees or grams, beginning with smaller amounts. 

Step 3: Place your buy order after reviewing the displayed gold price. 

Step 4: Make payment via UPI, netbanking, or other supported digital payment methods. 

Step 5: The platform will instantly purchase physical gold and store it in an insured vault through its partnered refiner or vault provider (e.g., SafeGold, MMTC-PAMP) in your name.

Step 6: Your digital gold balance will be updated, and you can easily track your investment in real time on the account dashboard. 

To exit, you can sell your digital gold for cash at the platform's prevailing prices, or redeem it for physical gold (subject to minimum quantities and additional charges).

What You Actually Own

With digital gold, ownership is based on contractual or beneficial entitlement and not direct possession of physical gold. When you buy digital gold, you acquire the right to a specific quantity of physical gold held in a third-party, secured vault. You do not hold a specific coin or bar unless you opt for physical delivery. Instead, the provider has a contractual obligation to ensure that the physical gold (corresponding to the digital holdings) is maintained in secure storage facilities.

The proof of ownership you should receive typically includes the invoice or purchase receipt, which serves as the primary proof of the transaction. It should include the purchase date and time, the exact gold weight (in grams), the price per gram, and the total amount you paid. This will confirm the legal fund transfers for a particular allotment of gold.

Every transaction is assigned a unique reference or transaction ID, which is important for monitoring specific investments within the provider’s system and for future requests/inquiries to redeem physically.

Some platforms also offer periodic vault or holding statements, similar to bank statements, that show the entire accumulated gold balance, including redemptions and purchases. This will be a continuous record of the present beneficial ownership that you hold. 

Investors should note that digital gold providers are not regulated entities,  and so audits and purity certifications are conducted at the discretion of the provider and its partners. 

Key Features of Digital Gold

Here are some key features of digital gold that you should know about. 

• Fractional buying

Investors can purchase gold in smaller denominations, including fractions of a gram. This makes it more accessible across budgets. 

• Live pricing

Prices are updated frequently and broadly reflect the prevailing gold rates, though buy and sell prices differ due to platform spreads. 

• Liquidity mechanics:

Most platforms allow selling back to the provider at quoted prices, often on a 24x7 basis, though liquidity depends on the platform’s operational policies.

• Insurance and Storage

The underlying physical gold is stored in a secure, third-party-insured vault, while the digital platform manages logistics on investors’ behalf. 

• Optional physical delivery

Depending on the platform or provider, investors may be able to redeem accumulated digital gold for physical bars or coins, subject to minimum weight requirements and additional costs, such as delivery and minting charges. 

Costs Associated with Digital Gold

Here are some costs that you should account for: 

• A 3% GST is applicable to the purchase value of digital gold, as with physical gold purchases in India.
• Platforms charge a spread of margin, meaning the buying price is higher than the selling price of your digital gold. This spread covers costs such as storage, insurance, logistics and platform operations. The buy and sell prices will always vary, which means that the gold market price should appreciate suitably to offset the margin before you make a profit on your investment. 

Digital Gold vs Other Gold Options

Here’s looking at digital gold vs some other gold options: 

• vs Physical Gold

Digital gold offers digital ownership backed by physical gold held in secure vaults. Physical gold gives you tangible, direct ownership of the asset, although purity varies (guaranteed in digital gold), with considerable making charges, lower liquidity, and the need for personal storage with associated safety risks. 

• vs Gold Mutual Funds

In the case of gold mutual funds, you buy units/shares of a fund tracking the price of gold ETFs or units in a fund primarily investing in gold ETFs. They are regulated by SEBI (unlike digital gold), highly transparent (with real-time NAV), and require demat accounts (which are not required for digital gold). They also have annual expense ratios that may be higher than the digital gold platform's fees/spreads. They also do not have physical delivery options, unlike digital gold.

• vs Gold ETFs

Gold ETFs are SEBI-regulated, exchange-traded instruments that track gold prices and require a demat account to invest. Units represent exposure to gold prices rather than the ownership of specific physical gold units, and trading is limited to market hours.