The Securities and Exchange Board of India (SEBI), a market regulator, has warned investors against purchasing digital gold goods via unregulated platforms, stating that these items are not subject to its regulatory framework. The agency further stated that investors are exposed to operational and counterparty risks because a number of fintech platforms and applications are selling gold online without any oversight.

Key Highlights

• SEBI warns digital-gold products lie outside its regulation, exposing investors to operational and counterparty risks.
• Fintech platforms see the advisory positively as it clarifies regulatory stance and uplifts credible digital-gold ecosystem.

Digital gold is distinct from gold exchange-traded funds and electronic gold receipts, which are regulated investment instruments, according to SEBI. Investors do not have the same level of protection provided in the capital markets because digital gold is not categorized as a securities or commodity derivative.

With platforms like SafeGold, Paytm, Google Pay, Jar, Gullak, IndiaGold, and PhonePe, digital gold has grown in popularity as a savings option among retail customers. Although these apps make it simple for consumers to buy modest amounts of gold and redeem them, experts claim that the services fall somewhere between financial and physical assets.

According to IndiaGold co-founder Deepak Abbot, the company's major focus is still on gold monetization rather than digital gold. "At this point, digital gold makes up less than 1% of our company and is not our primary emphasis. According to our interpretation of the circular, SEBI has made it clear that they do not regulate digital gold, hence they are unable to provide customer protection in the event that a platform supplying digital gold experiences negative consequences," Abbot stated.

Many established players see SEBI's circular as a welcome step, an industry analyst told. "While larger players are already compliant, the advisory primarily targets bad actors who neglect to audit or insure their physical gold." The industry group is in discussions with the regulator as well, and things appear to be going well," the source stated.

Also Read: SEBI Issues Alert Against Unregulated Digital Gold Platforms

In contrast to 2021, when the regulator instructed some companies to cease selling digital gold, the expert said that SEBI's tone this time is more balanced. The individual stated, "Now, it's just clarifying that such products don't come under investor protection," pointing out that major banks and government-backed organizations like MMTC have contributed to the development of the digital gold ecosystem.

Given the increase in gold prices and interest, the majority of players who have expanded their services to include digital gold may have done so in an effort to demonstrate better transaction values. Many consumers run the danger of being duped by dishonest operators since they constantly explore these platforms for "deals." In fact, many Indian customers who attempted to trade gold after the price increase found out the hard way that pre-hallmarked gold was offered with large variations in purity, with jewelry buyers being especially severely affected.

According to jewelers, consumers have found purity levels as low as 15–16 carat on gold designated 22 carat on gold jewelry that is offered for exchange. When gold is viewed as an investment, digital gold is meant to handle these kinds of problems; nevertheless, the reliance on the platform's legitimacy is much greater than that of the jewelers you purchase from, since there is no tangible gold to display. Purchasers ought to behave appropriately.