Digital gold platform SafeGold has launched “Gains”, a service for customers to lease their digital gold and get some returns, The Economic Times reported online Tuesday. The metal will be taken from the vault, where customers store digital gold, and leased to small jewellers, the report mentioned.
“The MSME Jewellers Verified for Creditworthiness and KYC-Compliant”
The report quoted an official statement as follows: “Gains is peer-to-peer lending where a customer can themselves choose the jeweller and tenure of the lease. The yield offered by the jeweller will be on the basis of the tenure chosen by the customer. The MSME jewellers mentioned on the website (of SafeGold) have been verified for creditworthiness and KYC-compliant.”
“Customers can Lease 0.5g-20g Digital Gold; Can Expect 3-6% Annual Yield”
“An individual can lease a minimum of 0.5 grams and a maximum of 20 grams of digital gold under the scheme. The lease can be done for 30 days to 364 days,” the statement added.
“However, most leases are between 90 and 180 days. A customer can expect a yield of 3-6% per annum. The yield will be calculated on a daily basis and added to the customer’s digital gold account on a monthly basis. The earned yield will be in the form of gold. Hence, once the lease expires, the original gold leased and the yield earned in the form of gold will be added to the customer’s account,” said SafeGold Founder & MD Gaurav Mathur, as per the ET report.
The customer will get a monthly statement providing information on the yield added to the digital gold account, the report also mentioned.
The company, however, reiterated that leasing digital gold does not assure a person of any returns in rupee terms.
What are the Risks?
The ET report also mentioned the following risks associated with digital gold leasing, as per the SafeGold website:
Unregulated product: Digital gold leasing is an unregulated product. In case of any loss or fraud, a customer may not be able to seek redressal from a regulatory body like the Securities and Exchange Board of India or the Reserve Bank of India, the company has highlighted.
Liquidity risk: Once the gold is leased by the individual to a jeweller, she cannot sell it before the lease expires. The digital gold is locked in for the period. Customers cannot cancel the lease before its expiry. However, the jewellers can cancel a lease early. If a jeweller does that, then the leased gold and the yield earned till the day the lease is closed (in gold) will be added to the customer’s digital gold account, the company website stated.
Loss of capital: A customer can lose her leased digital gold in case the jeweller does not return it at the end of the tenure. However, SafeGold claims to have taken steps to protect customers’ interest. “We have taken bank guarantees from the jewellers’ listed on the platform. The value of the bank guarantee is higher than the value of the gold leased. Typically, we take a bank guarantee of 105-110% of the gold leased. Further, if gold prices rise, then additional bank guarantees will be taken to ensure that the guarantees are always higher than the value of the leased digital gold,” Gaurav Mathur was quoted in the ET report.
Price risk: The yield is earned in grams of gold. “If the price of gold falls, the rupee value of gold will also fall. For example, on the date of starting the lease, the price of gold was ₹100. However, after one month, the price falls to ₹90. The rupee value of the leased digital gold will also fall. But due to the lock-in clause, the customer will not be able to sell the gold and lower her losses expecting future fall in gold prices”, the report quoted the company website.
No guarantee: SafeGold does not offer any guarantee on the protection of capital or returns, the report added.
Safegold also stated this is the first time such a product is being offered, adding, “One needs to consult a tax expert to calculate the taxes payable on returns earned on leased digital gold.” The report also highlighted that digital gold leasing returns do not come under Tax Deducted at Source (TDS) obligations.
So, should you consider leasing your digital gold? Do let us know in the comments below.
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