Investing in Digital Gold? SEBI Warns of Major Risks

Gold has always held a special place in Indian households, especially for weddings, valued as a secure asset during economic uncertainty, and treasured across generations. Whether crafted into jewellery or stored as coins, gold has always symbolized security, prosperity, and legacy. Recently, the value of gold has been rising, prompting many investors to purchase and store it as a secure asset for the future. In the digital age, however, a new form of this precious metal - digital gold is drawing growing attention and regulatory caution.

The Securities and Exchange Board of India (SEBI) has issued a warning to investors about this modern iteration and for good reason.

What is digital gold?                                          

Digital gold provides individuals the ability to acquire and exchange small amounts of gold via applications and websites, frequently for as low as ₹10 or ₹100. The site states that it holds an equal quantity of actual gold in a vault on behalf of the buyer.  Investors can subsequently redeem it for physical gold or trade it digitally.

It quickly gained traction for its convenience of owning gold without needing to visit a jeweler or invest a large amount upfront. Apps like Paytm, PhonePe, and Google Pay built partnerships with companies like MMTC PAMP and Augmont to offer digital gold products.

Why has SEBI issued an advisory?

SEBI notes that digital gold products are not regulated under its framework they are neither securities nor commodity-derivatives that fall under SEBI’s purview.

In its advisory titled “Caution to public regarding dealing in ‘Digital Gold’”, SEBI stated that such products “operate entirely outside the purview of SEBI” and may expose investors to “counter-party and operational risks”.

What risks are involved?

Since digital gold platforms are not under SEBI’s regulation, investors lack the usual investor protection mechanisms available for securities market instruments. That means if a platform fails to deliver, loses gold, or collapses, there may be limited legal recourse.

There are also operational issues: there is no verification that the physical gold supposedly securing each investment is audited, securely stored, or not subject to competing claims. Pricing may also include hidden mark-ups from vaulting, insurance, or payment gateway fees that are higher than the normal rate for gold.

How Digital Gold compares with Regulated Gold Investments

By contrast, regulated products such as gold ETFs, electronic gold receipts, and exchange-traded commodity derivatives are regulated by SEBI and must utilize SEBI-regulated intermediaries. Such regulated products provide greater transparency than most digital gold offerings and also have specified custodial norms and investor protections.

What should investors do?

Investors who currently hold digital gold should take note of SEBI’s advisory seriously. It does not mean that all digital gold will fail or that it is banned but it means that the risks are higher because of the regulatory vacuum. Experts suggest considering shifting holdings to more regulated gold products if security and oversight rank high on one’s checklist.

While digital gold offers convenience and easy access, the absence of regulatory protections means you may be giving up some of the historic safety-net that regular gold investments provided. Just like with any investment: know what you are purchasing, know what protections (or lack thereof) and choose accordingly.