Over the course of the last few years, alternative digital methods of investing in gold have gained quite a lot of popularity. These methods eliminate the hassle that comes with the physical ownership of the precious metal and make investing in gold highly convenient and accessible. Digital gold is one such option where you buy gold online through trusted platforms such as Google Pay, PhonePe, and Paytm, and the equal quantity of physical gold you buy is kept safe in insured vaults on your behalf.
This method doesn’t require a demat account, so you can instantly buy or sell more gold anytime you like. Digital gold also allows you to make pocket-friendly investments as you can start with an amount as small as Re. 1.
If you’re asking yourself what factors influence digital gold return and how to calculate it, you’ve landed in the right place! Although you can also use a digital gold return calculator to make things easier, understanding how everything works can help you make better decisions.
What is Digital Gold Return?
Digital gold is an investment option offered by various digital wallets and fintech apps such as Amazon Pay, Google Pay, and PhonePe. These apps have partnerships with reputed gold sellers like SafeGold and Augmont Gold, and give you a platform to instantly buy, sell, and hold gold electronically through these sellers. The amount of 24 K gold you buy gets physically stored in insured vaults so you don’t need to worry about storage, theft, or purity.
The profits you earn on these investments are known as the returns on digital gold. The factors that influence these returns are mostly the same as the ones that impact physical gold investments, with a few differences such as nominal storage fee or conversion fee.
Factors Affecting Digital Gold Returns
Factors that affect your digital gold investment also overlap with those influencing physical gold investments, with a few differences. Let’s check them out:
- The most important factor that influences how much return you will earn on your investment is the market price of gold. When you buy digital gold, a rate is displayed on top of the platform based on the current market price, which fluctuates throughout the day. You can always refresh it to get the latest gold rate. The market price in itself is influenced by various factors such as geopolitics, world economics, demand and supply dynamics, regulatory policies, and interest rate changes.
For example, you may have noticed that gold prices tend to spike around Diwali and Dhanteras. This is due to the cultural significance and increased demand around this time.
- Internationally, the trading of gold is done in the US Dollar. The fluctuations between the Dollar and Rupee can cause the gold prices to fluctuate as well.
- Large scale gold reserve transactions by the government also influence the market price of gold.
- How long you hold your investment determines whether a Short or long-term capital gains tax will be charged. STCG tax is charged when you redeem your investment within three years of buying. The profit is added to your income and taxed according to your income tax slab rate. On the other hand, LTCG tax applies if you hold your investment for more than three years before selling and is charged at a flat rate of 20% with the benefit of indexation.
- A Goods and Sales Tax is also charged when you buy digital gold, which is 3%. Thus, any changes in taxation policies can also affect how much you’ll earn on your gold investment.
- Generally, the above factors impact all kinds of gold investments. However, there are a few unique factors that influence your digital gold returns specifically. These are the platform, storage, and conversion fees. Sellers such as SafeGold and MMTC PAMP use highly secure vaults to store your gold to ensure its safety and integrity. For this, they charge a storage fee which is generally under 0.5%. Some sellers even allow free storage periods of up to 5 years. If you want to convert your digital investment into a physical one, a conversion charge can also be levied by the seller.
- Another key factor that separates digital gold returns from physical is liquidity. You can sell your digital investment at any time through your platform. This allows you to quickly capitalise on market fluctuations. Selling physical gold quickly can take some time. First, you need to find a buyer, then you need to negotiate a price. There is some chance that you may not get a fair price for your investment.
Step-by-Step Guide to Calculate Digital Gold Return
Calculating gold returns using a digital gold return calculator is easy. All you need to do is input some values such as the investment amount, duration, and expected annual growth rate to get an estimate of your investment’s future value. Calculating it manually includes the following steps:
- Find out the price (per gram or per mg) you paid when you first bought the digital gold. Usually, this price is inclusive of taxes.
- Check the current price of gold. You can find it easily on the platform where you made the purchase.
- Subtract the purchase price from the current price to get how much profit you made.
- Use the formula Return = (Price Difference / Purchase Price) * 100 to get a return percentage.
- Subtract the platform or storage fee to get a net return on your investment.
- You can later adjust this figure by accounting for taxes (LTCG or STCG) to get an accurate estimate of your profit.
Digital Gold Return Formula
When you buy digital gold, the price per gram inclusive of all taxes is displayed on the platform screen. This price refreshes throughout the day to give you the latest gold prices. Similarly, when you sell your digital gold investment, the platform fetches the latest selling price which includes any platform and storage fee. Remember to note the price at which you bought the digital gold.
You can use the following formula to get the return percentage:
Return = ((Current Market Price – Purchase Price) / Purchase Price) * 100
Example Calculation of Digital Gold Returns
Here is an example to help make gold return calculation easier:
Imagine you bought 1g of digital gold in early 2023 for Rs. 6,500. (This doesn’t include the GST you paid). If you want to sell your investment in October 2024, you’ll need to check the latest gold price, which is around Rs. 7,900 per gram. To calculate the return on investment over these years, you can use the formula:
Return = ((Current Market Price – Purchase Price) / Purchase Price) * 100
Return = ((7,900 – 6,500) / 6,500) * 100
Return = (1,400 / 6,500) * 100
Return = 0.2153 * 100
Return = 21.53%
Now you need to account for the platform and storage fee, which differs from seller to seller. Suppose the fee is 1%, then your net return would be 21.5% – 1% = 20.5%.
Conclusion
The factors that affect physical and digital gold returns are largely the same, the main difference being an extra storage and platform charge in the case of digital gold. However, this doesn’t mean that there aren’t any charges exclusive to physical gold. You may need to invest in a high quality locker for safekeeping, and if you are buying jewellery you’re going to have to bear the making charges as well.
Digital gold completely gets rid of any storage, wear and tear, purity, and theft headaches, and is a much more convenient and liquid way of adding the yellow metal to your investment portfolio. Calculating digital gold return is a pretty straightforward process. To estimate the approximate future value of your gold investment, you can also use an online gold return calculator.
