How to Buy and Invest in Gold Using Your Demat Account?

Introduction

Gold has been significant in Indian culture since ancient times for its inherent value and stability. From the reign of the Maharajas to modern investors, gold continues to be beyond a cultural icon.

With changing times, the way inventors invest in this precious metal has evolved from physical gold to its digital alternatives. The question is do you need a demat account to invest in gold online? If yes, how to invest in gold through Demat account. Let us cover the same in this article.

How to Buy Gold in a Demat Account?

Let’s get started with how to buy gold in demat accounts. Consider the below options:

Sovereign Gold Bonds (SGB)

The Reserve Bank of India (RBI) issues Sovereign Gold Bonds (SGBs), which allow investors to purchase gold in the form of bonds that track gold prices and pay an additional interest above the capital appreciation.

SGBs are government-backed assets and therefore carry minimum risk. These bonds have an 8-year tenure, an exit option after 5 years, and a set annual interest rate of 2.50%, payable semi-annually.

Gold ETFs (Exchange Traded Funds)

Gold Exchange Traded Funds (ETFs) are simple instruments to invest in gold through a Demat account. They combine the flexibility of stock trading with the simplicity of gold investing.

Gold ETFs represent 99.5% pure physical gold bars, and are traded on stock exchanges such as the BSE and NSE. With Gold ETFs, you can easily track the local price of gold and invest at the same price all over India, unlike physical gold which may vary. Some examples of Gold ETFs are Axis Gold ETF (AXISGOLD), ICICI Prudential Gold Exchange Traded Fund (IPGETF), and Kotak Gold Exchange Traded Fund (KOTAKGOLD). India has multiple Gold ETFs.

This option of investing in gold is low-cost and convenient without the complications and risks associated with the physical storage of gold.

Gold Mutual Funds

You can invest in gold mutual funds with your Demat account, making it simple to manage and trade them. Gold funds are an attractive choice for investors seeking to diversify their portfolios. 

Axis Gold Fund, Quantum Gold Savings Fund, and Nippon India Gold Savings Fund are some of the popular Gold Mutual Funds in India.

These funds are governed by the Securities and Exchange Board of India (SEBI), which helps to reduce the risks associated with mutual fund investing. Gold mutual funds offer direct and indirect investments in gold.

E-Gold or Digital Gold

E-gold is a digital form of gold investment developed by the National Spot Exchange Limited (NSEl) in 2010. It is intended for investors who do not want to exchange actual gold. Here, investors buy units of gold, which is typically 1 gram. It is credited to the Demat account of investors on a t+2 basis. However, such demat accounts are offered only if the brokerage house is a member of NSEL.

A benefit of e-Gold is that you can convert it into physical gold by visiting NSEL-prescribed centres. You are required to pay demat and brokerage charges, stamp duty, and physical conversion costs.

If you want to integrate gold into your long-term financial plans, you can invest in digital gold on various investment platforms.

Gold Futures & Options

Gold futures provide another way to trade in gold via commodities markets. This is specifically for traders. They can buy gold futures or options which are derivatives contracts on exchanges such as India's Multi Commodity Exchange (MCX) and benefit from price movements..

There are four types of Gold options contracts as below.

Can a Demat Account Be Used to Invest in Digital Gold?

Investors can utilise their Demat accounts to invest or trade e-gold, Gold ETFs, and Gold Funds. This facility provides a convenient and secure option to buy gold electronically. 

Investing in digital gold does not require a separate Trading/Demat account. You can use your existing demat account for Gold ETFs or funds. If you prefer trading gold in the derivatives market, the available positions are options and futures contracts which are advanced trading instruments. 

Investors can also manage their digital investments in gold directly through any investment platform that manages everything from buying, selling, and securely storing the gold.

It might interest you that many of these platforms often partner with gold dealers to ensure that each unit of digital gold is backed by physical gold.

What Does ‘Digital Gold’ Really Mean?

Digital gold is a virtual form of investing in actual gold that represents gold's intrinsic value and financial stability. When you buy digital gold, you receive a fraction of the real gold. This investment is often represented by digital certificates or tokens, which are backed by gold reserves in secure vaults.

Digital gold can be acquired and sold in real-time, with its value based on the current market price of physical gold. You can buy and sell 24-carat pure gold units online without the need for physical delivery or storage. 

Furthermore, you can change your digital gold into actual gold, either as jewellery or in other forms, whenever desired by selling the units.

Benefits of Buying Gold in a Demat Account

Now that you know what is digital gold, let us see the advantages of digital gold:

• Convenience: Investing in gold online, removes the need for physical storage and ensures simplicity of the transaction. You do not have to visit a jeweller to purchase or sell gold.

• Accessibility: A variety of gold investment options, including Gold ETFs, Sovereign Gold Bonds (SGBs), Gold Mutual Funds, and Digital Gold are available. This increases the accessibility for investors as they can according to their preferences.

• Hedging against Volatility: By including an asset such as gold in your portfolio, you can hedge against market volatility and inflation, improving portfolio stability.

• Liquidity: You can easily convert gold holdings such as Gold ETFs into cash during market hours using a demat account. This offers flexibility and liquidity as needed.