Personal finance is very subjective, and some investors prefer to invest in digital gold, whereas some prefer stocks. Gold is often known as a safe investment, whereas a large number of individuals tend to avoid investing in stocks because of the associated risks. Some believe that digital gold is a superior investment, but some believe it does not generate enough return on investment. Let’s find out if digital gold is truly a better investment than stocks in 2024-2025.
What is digital gold?
Digital gold is an alternative to buy the yellow precious metal in the physical form. You can purchase gold online, and an equivalent amount of physical gold will be stored in an insured vault. When you like to sell the gold, you can sell your unit and you will receive the same amount of money directly in your bank account.
Where to buy digital gold in India?
In India, you can buy digital gold using platforms such as Google Pay, PhonePe, Groww, Tanishq and Amazon Pay.
Pros and Cons of investing in digital gold
One of the main reasons for investing in gold is associated with higher returns, and it is the same for digital gold. From 1960 to 2023, gold generated a CAGR of 10.51%, and if you own digital gold, you can enjoy higher returns on your investment. Digital gold can be bought online, which eliminates the need to visit any physical store. As the digital gold is stored in a sourced and insured vault, you don’t have to think about loss, theft or damages.
One of the main advantages of digital gold is definitely related to small investment due to fractional ownership; in India, you can start with even 1 Rupee. Unlike physical gold, digital gold offers higher liquidity, and you can convert it into cash easily.
One of the main disadvantages of investing in digital gold is linked with the vault storage fees which could add up over time. You should know that gold prices can fluctuate rapidly due to changes in interest rates and geopolitical tensions. Unlike stocks and bonds, digital gold does not generate any income like dividends and internets; you only benefit when the price appreciates.
Pros and Cons of investing in stocks
Historically, stock markets have outperformed any other asset class in the longer time frame. If you have knowledge in investing you can easily generate higher returns. Many companies pay dividends, so you can generate a passive source of income on top of capital appreciation. Stocks come with high liquidity, and you can buy and sell stocks during trading hours from the exchanges (BSE and NSE in India) easily. When you purchase a stock, you become a partial owner of the company, who gains the right to vote and determine the future of the company. Stock allows you to diversify your investment across different industries like finance, mining, IT and construction, lowering the risk of your investment portfolio.
The stock market is extremely volatile, and your returns are directly linked to political events, company performance, and market sentiments, creating short-term fluctuations. Individual stock investment is a full-time job as it requires time and effort to research companies and economic trends, which is overwhelming to new investors. Stock investors need to understand that, unlike bonds, there are no guaranteed returns. There is always the risk of losing a portion or the entire invested capital if the company goes bankrupt. Although dividends can become a great source of passive income, however during tough times, companies often stop paying dividends.
Bottom line: Truth or myth
Investing in digital gold is better than investing in stock, and this is neither the full truth nor a complete myth. This actually differs from investor to investor. For individuals who do not want to take much risk, investing in digital gold becomes a safe and secure option. On the other hand, for young individuals who want to grow their wealth, investing in the stock market is important because here earning millions through knowledge and patience is possible.
First, the investor has to figure out their risk appetite; if someone has family responsibilities and debt, investing in the stock market might not be optimal because of volatility; for these investors, investing in digital gold should be the priority. On the other hand, young investors who do not have many liabilities have the time and position to take higher risks for higher returns. Investing in both stocks and digital gold comes with certain risks, which is the reason consulting with a certified financial advisor is always recommended.
Alternatives to digital gold and stocks
1. Bonds
Bonds provide regular interest payments, which are known as coupons. As bonds are generally issued by government and prestigious corporations, these are less volatile compared to other asset classes. However, you should understand that bonds typically generate low returns (usually 5-9 %in India) compared to other popular investment options. The price of bonds can fall when the interest rate rises, which can cut the profit margins.
2. Real Estate
Real estate is the most popular investment instrument in India and most parts of the world because it provides physical assets which can be used to rent out for income. Most of the time, property value increases, promising a hefty return on investment. However, there is the requirement of higher initial investment and maintenance costs, which is not easy for a new investor. One of the main issues related to real estate investment is related to the absence of liquidity, selling a real estate property is challenging.
3. Real Estate Investment Trusts (REITs)
REITs allow investors to invest in real estate property with small capital (as you will gain fractional ownership) and attain a steady income stream (90% distribution of the income is mandatory as dividends). It offers better liquidity, and you do not have to maintain the physical property. However, REITs are subjected to management fees, which can reduce the overall returns.
4. Fixed Deposits
This is the safest form of investment, where you can put a lump sum of money in a bank for a set period of time (1 year to 10 years) and earn a fixed internet on the capital. The interest rate can vary between 5-9 %, and this is appropriate for investors who do not want to take much risk and enjoy a stable return.
FAQ
What is digital gold, and how does it work?
Digital gold is a way to invest in gold online, where the equivalent physical gold is stored in an insured vault. Investors can buy and sell units online, and the money is directly transferred to their bank account upon sale.
What are the pros of investing in digital gold?
Digital gold offers higher returns, convenience in purchasing, secure storage, and fractional ownership. It also provides liquidity as it can be easily converted into cash.
What are the cons of investing in digital gold?
Vault storage fees can accumulate over time, and digital gold does not generate income like dividends. Additionally, its value fluctuates due to interest rates and geopolitical tensions.
How does investing in stocks compare to digital gold?
Stocks historically offer higher long-term returns and allow you to earn dividends and capital appreciation. However, they are more volatile and riskier compared to digital gold.
Which investment is better: digital gold or stocks?
It depends on the investor’s risk appetite and goals. Digital gold is safer with less risk, while stocks offer higher returns.
