The Securities and Exchange Board of India (Sebi) has cautioned investors against investing in digital gold offered by online platforms. These products fall outside Sebi’s regulatory purview and lack investor protection safeguards.
Investors must ask for a third-party vault certificate confirming physical gold holding before purchase. If the platform does not provide such a certificate, individuals should avoid investing in digital gold. If the platform is not transparent, existing investors should redeem and invest in Sebi-regulated gold products .
Sales of digital gold up
Investors buy digital gold online without holding the metal in the physical form. Three metal trading companies—Augmont Gold, MMTC-PAMP India (a joint venture between state-run MMTC Ltd and Swiss firm MKS PAMP) and Digital Gold India with its SafeGold brand— sell digital gold. Several fintech platforms such as Paytm, Google Pay, PhonePe, InCred Money sell digital gold.
Digital gold is not regulated by any regulator and there are concerns whether the certificate issued by the entities is backed by physical gold. Digital gold gained popularity amongst millennials due to ease of investing through mobile and online platforms and the cashback rewards offered by the wallets.
As gold prices rose over 50% in the last one year, several online platforms aggressively promoted digital gold. Data from the National Payments Corporation of India shows that the volume of digital gold purchases through UPI has more than doubled from 51 million transactions in January this year to 103 million in September. In value terms, it rose from `762 crore to `1,410 crore during the same time period.
Regulatory gap
The regulatory gap exposes investors to multiple risks, including counterparty risk if the platform managing the digital gold defaults. Operational risks can take place if there is no guaranteed gold backing or lack of independent audits.
Kaynat Chainwala, assistant vice-president, Commodity Research, Kotak Securities, says fees and taxation related to digital gold investments may be unclear or undisclosed, while transparency and consistent audits are generally missing in these products. “Investors should consider safer, Sebi-regulated gold investment avenues such as gold ETFs, electronic gold receipts and exchange-traded commodity derivative contracts,” she says. These regulated products provide investor protection, transparency, and operate within Sebi’s supervisory framework.
In 2021, the markets regulator had flagged digital gold sales as breach of Rule 8 (3) (f) of Securities Contracts (Regulation) Rules, 1957. It instructed stockbrokers and wealth managers not to sell digital gold on their platforms.
Saurabh Jain, co-founder & CEO, Stable Money, says pricing transparency can also vary across platforms. “While digital gold offers convenience, it lacks the safety net that regulated products like gold ETFs provide, underscoring the importance of investors being aware of these vulnerabilities,” he says.
Gold ETFs
Gold mutual funds and gold ETFs are regulated by the markets regulator and provide investors with the assurance of clear pricing and audited holdings. This ensures that every gram invested is securely backed and easily redeemable. Net inflows accelerated from Rs 2,190 crore in August to a record Rs 8,363 crore in September. In October, net inflows were Rs 7,743 crore. The assets under management touched Rs 1 lakh crore-mark in October-end.
Investors can also look at sovereign gold bonds from the secondary market. These bonds pay an annual interest of 2.5% and are tax-efficient if held till maturity.