Buy Swiss digital gold? Don’t forget the risks

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A relatively new player, Digital Swiss Gold (DSG), offers the possibility of owning Swiss gold through its app. Let’s understand the features and risks of DSG to know whether it is worth investing and whether it offers an advantage over digital gold on offer in India.

What is the DSG?

The company named Digital Swiss Gold India Pvt. Ltd allows investors to own Swiss gold through the Digital Swiss Gold app. The gold you have purchased is kept in the vaults of Brink’s in Zurich, Switzerland. Brink’s operates high security safes.

To buy gold, your Aadhaar based KYC (Know Your Customer) has been completed. The company buys gold from Swiss refiners. You receive proof of ownership by means of a photograph of the gold bar and a digital warehouse receipt with details such as date of issue, holder’s name, account number, series of the gold bar, quantity of gold, location of the vault, gold refiner, brand verification and associated Linux Foundation Hyperledger blockchain number.

Dsg purchase cost

The prices of Indian digital gold and DSG are indexed to the gold price of the London Bullion Exchange. However, since DSG is not imported into India, an import duty of 7.5% and a tax of 2.5% is not levied, making it cheaper than Indian digital gold. “Typically, the gold price difference between digital gold suppliers in India and Swiss gold is 6-8%,” said Ashraf Rizvi, Founder and CEO of Digital Swiss Gold.

“We charge investors up to 3% while the difference between the buy and ask price can be up to 6% in the case of digital gold offered in India due to the product tax and 3% services charged, ”he added.

Investment limit

As this is an investment made outside of India, it is likely that there will be an investment limit during a financial year. Under the Liberalized Transfer System (LRS), you can only invest up to $ 250,000 overseas in a fiscal year.

One of the important features of digital gold is that it gives the investor the ability to take physical delivery of the gold upon redemption, while the same is not possible in the case of DSG because gold is kept outside India. However, investors can sell the gold back to DSG through the app itself.

“When selling DSG, the money is usually credited within 2-3 days to investors’ accounts. You can invest in DSG through credit or debit cards, but international payments will need to be enabled on the card, ”said Rizvi.

“People can invest or acquire assets using credit or debit cards outside of India,” said Tarun Kumar, a Delhi-based accountant.

“However, when making payments, you should ideally inform your bank, which will help you make the necessary disclosures under the Foreign Exchange Regulation Act (Fema),” said another accountant, who did not wished to be named.

Taxation

Gains from an investment in digital gold will be taxed in the same way as physical gold. So, if you sell the gold before three years, the gains will be taxed at the slab rate, while if it is sold after three years, the gains will be taxed at the rate of 20% after indexation.

However, in case of DSG, the investor will have to make additional declarations in the tax return (ITR).

“It will be considered a foreign asset; therefore, the same will have to be disclosed in tax forms under foreign assets, ”said Prakash Hegde, a Bengaluru-based accountant. “In addition, documents indicating the source of funds should be kept as they can be examined by the tax department,” Hegde added.

In addition, investors should verify the obligation to disclose using Forms 15CA or 15CB money paid overseas to avoid any violation of Fema.

Usually, if you are sending money overseas under LRS, you need to fill out the forms and deposit them with your banks. You should check with your bank or chartered accountant for such a requirement.

Should we invest?

The concept of owning Swiss gold sounds interesting and profitable, but it comes with its own risk that you should be aware of.

There are no regulations regarding digital gold in India. In the event of DSG, the investment will be made in a foreign country and will be governed by the laws of a foreign jurisdiction.

In the event of a dispute, investors may encounter problems in obtaining a resolution. “In the agreement with the company, it should [ideally] be an arbitration clause, where it should be mentioned that all disputes [arising with regard to DSG investments] will be subject to the jurisdiction of India, ”Kumar said.

Also, many people may not like the idea of ​​not being able to access gold.

“Buying international gold is an extremely niche market and something available to Indians for many years, but the majority of people did not choose it due to the higher transaction costs and conversion difficulties. currencies, ”said Sumesh Ramankutty, chief marketing officer, Augmont, an Indian digital gold supplier.

You have to know the risks before investing, warn advisers.

“The prospect of investing in Swiss gold seems attractive given the profitability, but it is an exotic option, you have to avoid excess. Those who want to take the risk and invest should not have a large exposure and can start with a very small allocation. We advise people to have 6-8% of the portfolio in gold. Of that total, maybe 1-2% can be invested in Swiss gold, ”said Arvind Rao, certified financial planner, accountant and founder of Arvind Rao & Associates, a financial advisory firm.

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