The digital version of gold, a modern take on India’s age-old fascination, has gained immense popularity among contemporary investors. By investing as little as Rs 100 through an app, individuals can purchase gold, monitor real-time prices, and later redeem it as coins or bars. However, the Securities and Exchange Board of India (Sebi) has recently raised concerns.
Last week, Sebi issued a public advisory cautioning investors against purchasing “Digital Gold” or “E-Gold” offerings from online platforms. The regulator emphasized that these products are not under its regulation, are not considered securities or commodity derivatives, and thus fall outside its purview.
In its announcement, Sebi highlighted that several digital platforms are promoting investments in Digital Gold/E-Gold products as easy alternatives to physical gold.
However, the regulator clarified that these products are distinct from Sebi-regulated gold instruments like Gold ETFs, exchange-traded commodity contracts, or Electronic Gold Receipts (EGRs).
According to Sebi, these digital gold products operate in a regulatory void. In case of platform default, redemption delays, or failure to deliver the gold stored on behalf of investors, there would be no recourse under Sebi’s investor protection framework.
Abhishek Kumar, a Sebi-registered investment advisor and founder of SahajMoney, praised Sebi’s caution as timely and essential.
“Sebi aims to alert users of digital gold platforms about the absence of regulatory oversight from Sebi. In the event of any default, investors would lack Sebi’s investor protection,” Kumar mentioned to IndiaToday.in.
He elaborated that the lack of regulatory supervision on digital gold platforms poses challenges for investors in assessing their reliability.
“Due to the absence of regulation and oversight, identifying the safe platforms from the risky ones is complex. There’s a risk of the platform not delivering gold or defaulting on redemption, along with concerns about the actual existence and secure storage of the gold,” he explained.
WHY SEBI CONSIDERS DIGITAL GOLD RISKY
The process of digital gold entails purchasing a small gold fraction, like Rs 500, via an app, with the company claiming to store an equivalent amount in a vault under custodianship. Some platforms even allow conversion of holdings into physical gold later.
The challenge lies in the absence of a standardized protocol to verify, audit, or ensure the existence of the gold in the vault. Additionally, there is no clear legal framework defining the course of action if the platform faces insolvency.
Unlike mutual funds or stockbrokers, mandated to adhere to Sebi’s stringent regulations, maintain segregated client assets, and undergo regular audits, digital gold platforms are primarily self-regulated.
Sebi’s caution is not against investing in gold per se but advises against investing in unregulated gold without understanding the associated risks.
Sebi recommends investors to opt for regulated gold products such as Gold Exchange-Traded Funds (ETFs) and Electronic Gold