Digital Gold vs Electronic Gold Receipts (EGRs): Which One is Better for You?

Digital gold can now be bought in seconds from a smartphone with the rise of fintech platforms and mobile investing apps. This shift is also being driven by changing investor preferences on ease of access, lower ticket sizes, storage concerns and portfolio diversification.

At the same time, investors are considering which form of gold best meets their financial needs, be it for long-term wealth creation, emergency liquidity, gifting or consumption due to factors such as taxation, liquidity, making charges in physical gold and differing investment objectives.

The shift in gold investing has created two emerging investment avenues: Digital Gold and Electronic Gold Receipts (EGRs). To put it simply, both these products allow investors to buy gold digitally, but they are totally different in terms of regulation, transparency, liquidity and investor protection.

Digital gold is a fintech-driven product gaining popularity quickly, while EGRs are a regulated exchange-traded instrument backed by the capital market regulator, the Securities and Exchange Board of India (SEBI).

Now, you must be having a question: which one should I choose? Don’t worry, we have covered key differences, regulatory frameworks, benefits and risks of investing in digital gold and EGRs in this article.

What is Digital Gold?

Digital gold is a form of gold investment offered by fintech platforms, payment apps and online marketplaces. With the help of digital gold, investors are allowed to buy gold even in small denominations like ₹10, and the equivalent amount of 24K gold is stored in an insured vault on behalf of the investor.

How Does Digital Gold Work?

• Investors purchase gold online through an app or platform.
• The equivalent amount of gold is allocated and stored in insured vaults.
• Investors are allowed to sell the gold on the platform and can convert it into physical gold.

SEBI’s Stance on Digital Gold

It is important to note that digital gold is not regulated by the market regulator, the Securities and Exchange Board of India (SEBI). Since investors in digital gold are neither classified as securities nor regulated as commodity derivatives,they operate entirely outside the purview of SEBI.

SEBI stated that “Such digital gold products may entail significant risks for investors and may expose investors to counterparty and operational risks.”

However, SEBI has allowed investments in gold and gold-related instruments through various SEBI-regulated gold products. These include exchange-traded commodity derivative contracts, Gold Exchange Traded Funds (ETFs) offered by mutual funds and Electronic Gold Receipts (EGRs) tradeable on stock exchanges.

Digital gold is taxed like physical gold and there are tax implications when it is bought and redeemed or sold. Investors are required to pay a 3% Goods and Services Tax (GST) on the purchase value, which is added to the total cost of investment.

So far you have understood what digital gold is, and now let us turn the lens towards the regulated digital gold instrument, Electronic Gold Receipts (EGRs).

What are Electronic Gold Receipts?

Electronic Gold Receipts are SEBI-regulated gold instruments introduced to create a transparent and efficient gold trading system in India. An EGR reflects ownership of physical gold deposited in SEBI-approved vaults and traded on recognised stock exchanges. In October 2022, the Bombay Stock Exchange (BSE) launched the first EGR during Muhurat trading on Diwali.

EGR is a digital certificate that represents the ownership of physical gold stored in secure vaults. Instead of buying and holding actual gold bars or coins, you can purchase EGRs from a stock exchange, much like buying shares.

How Do EGRs Work?

The EGR ecosystem is similar to warehouse receipt systems used in commodity markets.

• Physical gold is deposited with a SEBI-approved vault manager.
• The vault creates electronic gold receipts.
• EGRs are credited to the investor’s demat account.
• Investors can trade EGRs on stock exchanges like shares.
• EGR holders can convert receipts into physical gold subject to exchange norms.

Difference Between Digital Gold and EGR

Benefits of Digital Gold and EGR

Risks of Digital Gold and EGRs

Also Read: Investing in Digital Gold: Here’s What You Need to Know

Digital Gold vs EGR: Which One is Better?

Choose Digital Gold if:

• You are looking for convenience and instant access.
• You make small investments regularly.
• You are comfortable with moderate regulatory risk.
• Your focus is short-to-medium-term accumulation.

Choose EGRs if:

• You give priority to regulation and transparency.
• You are looking for stronger investor protection.
• You already invest through stock markets.

FAQs

What is Digital Gold?

Digital Gold lets investors buy, sell, and store gold online through apps and digital platforms. The gold is backed by physical gold stored in secure vaults.

What is an EGR?

An Electronic Gold Receipt (EGR) is a SEBI-regulated digital representation of physical gold. It is traded on stock exchanges and stored in approved vaults.

Is Digital Gold regulated by SEBI?

No, Digital Gold is not directly regulated by SEBI. Investors rely mainly on the credibility of the service provider.

Are EGRs safer than Digital Gold?

EGRs generally offer better investor protection due to SEBI oversight. They also follow standardised trading and storage rules.

Can I convert digital gold into physical gold?

Yes, many platforms allow investors to redeem their holdings as coins or bars. Delivery charges and minimum quantity conditions may apply.

Do I need a demat account for EGRs?

Yes, EGRs are held electronically in a demat account. A trading account is also required to buy or sell them on exchanges.

Which is better for small investments?

Digital Gold is usually better for small and frequent investments. Many platforms allow purchases starting from just a few rupees.

Can EGRs be traded like stocks?

Yes, EGRs can be bought and sold on recognised stock exchanges. Their prices are determined through market-based trading.