The Securities and Exchange Board of India (Sebi) has cautioned investors regarding the increasing popularity of digital gold, a service enabling users to purchase small quantities of gold online via applications. Many Indian investors have been engaging in digital gold transactions under the assumption that it offers a level of safety comparable to physical gold or gold exchange-traded funds (ETFs). However, Sebi has made it clear that these online gold offerings are not subject to any of its regulatory frameworks, thus carrying notable risks.
Digital gold facilitates the buying and selling of gold through financial technology apps and online platforms, typically in small amounts starting from Rs 10 or Rs 100. These platforms claim to secure an equivalent amount of physical gold in a protected vault on behalf of the purchaser. Subsequently, investors can sell the gold digitally or request physical delivery.
The concept gained traction due to its convenient gold ownership access without the need to visit a jeweler or purchase substantial quantities. Notable apps such as Paytm, Google Pay, and PhonePe have made digital gold available through collaborations with entities like MMTC-PAMP and Augmont. Nevertheless, Sebi has underscored a significant distinction between digital gold products and regulated gold instruments like Gold ETFs or Electronic Gold Receipts (EGRs), which are overseen by Sebi and traded on stock exchanges.
Sebi’s advisory stems from a singular concern: digital gold lacks regulation by any financial authority, thus not meeting the criteria as a security, deposit, or derivative. Consequently, Sebi does not have oversight on the operations or gold storage practices of these platforms. In a public notice, Sebi highlighted that such products operate entirely beyond its purview, cautioning that investors would not have the protection of securities market laws in case of any mishaps.
Abhishek Kumar, a Sebi-registered investment advisor and founder of SahajMoney, emphasized that Sebi’s initiative aims to inform investors about the potential risks associated with digital gold apps. He explained that unlike Gold ETFs or EGRs, where holdings are verified and storage is audited, digital gold platforms rely heavily on trust. The absence of standard regulations makes it challenging to discern the platforms that are secure from those that are not.
Should a platform close down or fail to fulfill its obligations, investors could face complete loss with limited legal recourse. Aishwary Gupta, Global Head of Payments at Polygon Labs, noted that Sebi’s warning is part of an effort to address a gray area in India’s financial system.
Experts recommend that investors take Sebi’s warning seriously and consider shifting their digital gold investments to safer, regulated products like Gold ETFs or Electronic Gold Receipts traded on stock exchanges. Regulated gold products offer transparency, investor protection, and legal safeguards, making them more suitable for long-term gold investments. While Sebi’s caution does not signify a ban on digital gold, it serves as a reminder for investors to understand the nature of their investments. Opting for regulated products ensures both the investment and rights of investors are safeguarded.