Have you bought digital gold or are planning to? The Securities and Exchange Board of India had cautioned investors about digital gold in 2025. In a circular, Sebi said these products were distinct from gold products regulated by it because they were neither notified as securities nor classified as commodity derivatives. “They operate entirely outside the purview of Sebi,” it said.Now, digital gold may come under the joint watch of the Reserve Bank of India and SEBI.
Physical gold to back digital gold?
The government is considering stricter regulations for digital gold, including a requirement that every unit be backed by physical bullion and a regulatory framework under the joint supervision of the Reserve Bank of India and the securities market regulator, according to an ET report.The finance ministry has sought feedback from regulators, banks and other stakeholders. A broad consensus has emerged that digital gold should be classified as a security under the Securities Contracts (Regulation) Act, 1956, the people said.Industry estimates put the assets managed by the digital gold sector at around $3 billion, while the average transaction size is Rs 100.“There is a consensus among all stakeholders that digital gold has gained acceptance among investors, and currently it is an unregulated segment which should be brought under the supervision of regulatory authorities,” said a bank executive who asked not to be identified. “We have submitted our recommendation to the government,” he added.Another executive said the absence of regulatory oversight had allowed some fly-by-night operators to enter the sector, raising concerns about investor protection and money laundering.“Bringing it under the supervision of both RBI and Sebi will ensure that there is no regulatory arbitrage and also end uncertainty among all legal participants, including investors,” he added.Industry participants are also backing greater regulatory oversight of the sector.“The digital gold and silver ecosystem in India needs some regulatory oversight urgently considering its acceptance with consumers and the numbers of retail consumers who are onboarded with various players,” said Samit Guha, managing director of MMTC-PAMP, one of the major digital gold companies.Digital gold platforms have formed a self-regulatory organisation this year, the Digital Precious Metals Assurance Council of India. Its members include bullion providers MMTC-PAMP and SafeGold, along with platforms such as PhonePe, BharatPe, MobiKwik, Gullak, Lenden Club and CRED.Guha said the council aims to bring greater standardisation to processes covering the purchase, sale and storage of gold, along with other related activities. The objective, he said, is to establish best-in-class processes and procedures while ensuring that customer interests remain fully protected.
Sebi’s warning in 2025
Sebi had cautioned the public against investing in digital gold and e-gold products offered through online platforms, stating that these products are not government-permitted securities and therefore fall outside Sebi’s regulatory framework.The warning came as global gold prices were close to record-high levels, following a period of intense buying of the precious metal in India.Sebi also pointed out that investors in digital or e-gold products would not have access to the investor protection mechanisms available under its regulatory oversight if they faced any complaints or disputes.The regulator said investors can instead gain exposure to gold through several products that come under its supervision.“These are exchange traded commodity derivative contracts, gold exchange traded funds (ETFs) offered by mutual funds and electronic gold receipts (EGRs) tradeable on stock exchanges. Investments in these Sebi-regulated gold products can be made through Sebi registered intermediaries and are governed by the regulatory framework prescribed by Sebi,” a release said.Sebi said it had taken note of digital and e-gold products being offered by various entities as alternatives to buying physical gold.“In this context, it is informed that such digital gold products are different from Sebi-regulated gold products as they are neither notified as securities nor regulated as commodity derivatives. They operate entirely outside the purview of Sebi.”The regulator also warned about the risks associated with such investments.“Such digital gold products may entail significant risks for investors and may expose investors to counterparty and operational risks.”It further reminded investors that “none of the investor protection mechanisms under securities market purview shall be available for investments in such digital gold/e-gold products.”The process of buying digital gold can start with a purchase of as little as Rs 100 through the seller’s website. The seller provides a receipt specifying the amount invested and the corresponding quantity of gold purchased.When the buyer wants to redeem the investment, the receipt can be surrendered to receive money equivalent to the value of the gold held. Depending on the options provided by the seller, the gold can also be exchanged for jewellery.
