Difference Between Physical Gold and Digital Gold

difference between physical gold and digital gold

Gold is a reliable investment for building and protecting wealth. Today, investors have more options than ever to purchase gold. Investors can choose to buy gold in the form of digital gold or physical gold. Digital gold is a form of gold you can buy, sell, and store online.

On the other hand, physical gold is buying gold as an investment in jewellery, coins, or bars. Each has its benefits, risks, and purpose. In this article, we will compare the differences between digital and physical gold to help you understand and decide which choice is best based on safety, returns, and the purchasing process.

Table of Contents

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What is Digital Gold?

Digital gold is an investment option that involves buying and selling gold online. It is backed by physical gold and stored in a vault by the company for you. You can buy or sell digital gold anytime on the app or website.

It’s an easy and seamless way to invest in gold without the storage and security worries at home. Digital gold tracks the price of physical gold. Many platforms in India have introduced ways to buy digital gold, starting from as little as ₹1.

What is Physical Gold?

Physical gold is the traditional way of purchasing gold through jewellery, coins, or bars. An investor may purchase from jewellers, banks, and authorised dealers. Many Indian families prefer physical gold as a traditional investment because they buy it during weddings and festivals while investing for the future.

Physical gold is valued based on its weight, purity, and market price. It also comes with additional costs, like making charges, storing it away, and even the risk of losing it due to theft. Some investors prefer physical gold because of its emotional, cultural, and investment value.

Key Differences Between Digital Gold vs Physical Gold

Now that we have a clear understanding of digital gold and physical gold, let’s compare the two based on various factors to help you decide which suits your investment needs.

Parameters Digital Gold Physical Gold
Meaning  It’s an online form of gold you buy, sell, and store digitally. Each unit is backed by 24k 99.99% purity gold. You can hold this traditional form of gold as jewellery, coins, or bars.
Buying Method  Buy online through apps and websites. Buy it from jewellers, banks, or authorised dealers.
Investment  Digital gold offers more flexibility and allows you to buy and sell based on weight or a fixed price. Investing in physical gold usually involves buying gold biscuits or coins in fixed denominations, like 10 grams, which means a larger investment upfront. 
Storage  The seller holds digital gold safely in a secured vault under the investor’s name, removing any risk of loss or theft. One has to safely store at home, in lockers, or bank vaults.
Liquidity Liquidity is high. One can easily buy or sell it at any time. One can buy physical gold from any jeweller. However, it may take time to sell it in the market.
Cost You will pay a bit more than market price, plus additional costs, including GST and platform fees. There are no extra making costs. It includes the gold price + GST + making costs (mainly on jewellery).
Purity  Assured 24K purity backed by the provider. Purity can vary. You need to check the hallmark before purchasing.
Taxation  If you hold gold for less than 3 years, the gains are taxed according to your income tax slab. If you hold it for more than 3 years, the gains are taxed at 20% with indexation. If you sell your gold investment within three years, the profit is added to your income and taxed as per your income tax slab. But if you hold it for over 3 years, the gains are taxed at 20%, and you also get the advantage of indexation.

Benefits of Investing in Digital Gold and Physical Gold

Gold is a good investment, whether you invest in it digitally or physically. However, their advantages may change according to their purchase and use. The table below explains the key benefits of each:

Advantages Digital Gold Physical Gold
Invest Small Amounts You can start with as little as ₹1. It’s easy to enter the market. You need to spend more, as it’s sold based on weight and purity.
Quality Get 24K certified purity backed by trusted providers. You can choose purity levels, but picking hallmarked gold is best.
Redemption You can sell anytime online or convert to physical gold with a few clicks. Visit jewellers or buyers to sell or exchange your gold.
Safety No need to worry about stealing or loss as it stays in secure, insured vaults. You must store it safely at home or in a locker, which involves risk.
Track Investments Easily track real-time gold prices and your holdings through apps. You will need to check market rates or visit sellers for updates.
Loan Some platforms may eventually allow users to use digital gold as loan collateral. Currently, options are limited but increasing. Easy to pledge physical gold with banks or companies for instant cash. 
Portfolio Diversification Add a digital asset to your portfolio without storage or handling hassles. Keep a tangible asset you can use in emergencies or hand over.
Real-Time Rates  Buy and sell at live market prices any time through your phone. You need to confirm market prices before making a purchase or sale.

How to Buy Physical Gold?

You can buy physical gold through jewellery, coins, or bars from trusted jewellers, banks, or government-authorised dealers. You can purchase physical gold by following these steps:

Step 1

Choose between jewellery, coins, or gold bars based on your budget and purpose.

Step 2

Always look for the BIS hallmark on gold. It proves purity and authenticity.

Step 3

Go to a reputable jeweller or authorised gold dealer. You can also check government-authorised gold outlets.

Step 4

Take a detailed bill with GST, weight, making charges (if any), and purity mentioned.

Step 5

Keep your physical gold in a safe place like a home or bank locker.

How to Buy Digital Gold?

Digital gold can be purchased online through apps like Paytm, PhonePe, Google Pay, and investment platforms. Take a look at the steps for buying digital gold:

Step 1

Choose from popular apps and platforms like Paytm, PhonePe, Google Pay, Groww, or the official websites of MMTC-PAMP, SafeGold, or Augmont.

Step 2

See the live gold rate on the platform before buying.

Step 3

You can start with as low as ₹1. Choose the amount you want to invest or the weight of gold you wish to buy. Pay using UPI, debit card, or net banking.

Step 4

After payment, you’ll receive a certificate confirming your gold quantity and purity.

You can check your digital gold holding anytime through the app and sell it whenever.

Is Digital Gold Safer Than Physical Gold?

Yes, digital gold is safer than physical gold. When you buy physical gold, you must find a safe place to store it. There's always a chance it could be stolen, lost, or damaged. You may even have to pay for a bank locker to protect it, which amounts to more money spent.

Digital gold, however, remains in safe, insured vaults run by reputable businesses. You should not concern yourself with safety, storage, or carrying it. Moreover, online apps let you track your gold anytime and sell it immediately as needed.

Why Choose Digital Gold Over Physical Gold?

Regarding ease, extra costs, and security, digital gold is better than physical gold. Here are the main reasons why you should choose digital gold over physical:

1. Lower Investment

With digital gold, you can start with just ₹1 if you don't want to spend a large amount simultaneously. This is perfect for new investors or those with limited budgets.

2. No Storage Problems

You must consider the safe storage of physical gold. Digital gold is kept in high-security, insured vaults free of any theft or loss risk.

3. Easy Tracking and Selling

Digital gold tracks your investment in real time. Apps let you view your holdings, track price swings, and sell at any time.

4. Quick Transactions

You can buy or sell digital gold in a few clicks. Unlike actual gold, which requires visiting a jeweller, this process is quick and simple.

5. No Extra Costs

Physical gold comes with additional costs like making charges and locker fees. Digital gold does not have these extra expenses, which is quite reasonable.

To sum up, digital gold and gold in physical form have advantages and disadvantages. Digital gold is relatively easier to buy, but it is not regulated and has a holding limit. Physical Gold has individual usage, but it isn’t a great investment.

Keep about 10-20% gold in your portfolio to help diversify where your investments are held and protect against macroeconomic changes and inflation volatility.

Disclaimer: The information provided on this website is for general informational purposes only and should not be construed as financial, investment, or legal advice. While we strive to provide accurate and up-to-date content, we do not guarantee the completeness, reliability, or suitability of the information for your specific needs.

We do not promote or endorse any financial product or service mentioned in these articles. Readers are advised to conduct their own research, consult with financial experts, and make informed decisions based on their unique financial circumstances. Any reliance you place on the information provided here is strictly at your own risk.

FAQs about Digital Gold vs Physical Gold

What is digital gold?

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Digital gold is an online investment platform that allows you to buy and sell gold digitally through apps and websites. It enables you to invest in gold without holding the physical asset. Digital gold is backed by real gold that is stored in vaults.

What is physical gold?

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Physical gold refers to tangible gold. It’s available in many forms, including coins, bars, or jewellery. You can own and store it physically.

Which is better: digital gold or physical gold?

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You should pick gold based on your requirements. Digital gold is simple to buy and track. It doesn’t need storage. Physical gold is a real asset you can hold. However, you will need a safe place to keep it.

What are the disadvantages of digital gold over physical gold?

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Digital gold has some shortcomings when compared to physical gold. You cannot use it as collateral for loans. Some platforms may charge additional fees in the future. If the platform ceases operations, you may have to wait before claiming your gold.

Is digital gold approved by the RBI?

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No, the RBI does not recognise or approve digital gold. It is sold by private companies such as MMTC-PAMP, SafeGold, and Augmont through popular apps. Digital gold is a legal product and safe to use with a trusted seller, but it works in the private sector without any connection to the RBI.

Can I convert digital gold to physical gold?

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Yes, most platforms allow you to convert your digital gold into physical gold. However, there may be some charges or fees involved.

Is it better to own physical gold?

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Yes, owning physical gold makes sense if you want to hold it long-term or use it as jewellery. It gives direct control without storage time limits. However, it comes with risks like theft and extra charges for making jewellery. So, it completely depends on your financial goals.

What is the difference between physical gold and digital gold?

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Physical gold is the kind you can hold in coins, bars, or jewellery. You buy gold at a retail store or bank (or sometimes auction) and store it physically. Digital gold is purchased through websites or apps, and the seller stores it securely in insured vaults.

Where can I buy digital gold?

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You can buy digital gold via apps and websites like Paytm, PhonePe, Groww, and other online platforms that support gold investments.

Is it better to hold physical gold?

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It depends on your choice. If you like holding something real, go for physical gold. If you want more flexibility, choose digital gold.

Is physical gold better than digital gold?

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It depends on your choices. Physical gold holds value as a tangible asset, whereas digital gold is more convenient, cost-effective, and easier to manage.

Which is more liquid: physical or digital gold?

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Digital gold is more liquid. You can buy or sell it instantly online at market rates without visiting a shop. Physical gold takes time to sell, and jewellers might cut prices for making charges or purity concerns. In emergencies, digital gold offers quicker access to money.

Which is safer: physical or digital gold?

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Both options carry risks. Physical gold can get stolen or misplaced if not stored carefully. Digital gold stays in a secure vault, and you receive a digital record as proof. However, since the RBI doesn’t regulate it, its safety depends on how reliable the selling platform is.

Can I use digital gold for a gold loan?

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Yes, you can use digital gold as collateral to get a gold loan. Digital gold loans allow you to borrow funds against your digital gold, just like you would with physical gold.

What is the loan value of physical gold vs digital gold?

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Both physical and digital gold loans are valued based on the same market value. Physical gold loans usually offer a loan-to-value (LTV) of 75% of market value. Digital gold loans can be less common and could have lower LTV.

Can digital gold be converted to cash?

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Yes, you can sell digital gold for cash using the same app you bought it on. The process is fast and seamless, and the money is transferred to your bank account.

Is buying digital gold taxable?

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Yes, buying digital gold is taxable. Short-term gains are taxed based on your income slab, and long-term gains are taxed at 20%, including indexation benefits.

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