 |
| SEBI cautions investors: Many online ‘digital gold’ platforms operate outside regulatory oversight, posing counterparty and operational risks.(Representing AI image) |
Digital Gold” Caution: Why Securities and Exchange Board of India (SEBI) Is Sounding the Alarm — What Investors Must Know
Table of Contents
- Introduction: The Rise of Digital Gold and the SEBI Advisory
- What Is “Digital Gold” / E-Gold? How It Works
- SEBI’s Advisory in Detail: Key Messages & Highlights
- Where Gold Investments Are Regulated: ETFs, EGRs, Commodity Derivatives
- Risks of Unregulated Digital Gold Products
- Data and Market Context: Gold Demand, Digital Platforms, Fin-tech Penetration
- Investor Insights & Opinion: Is Digital Gold Worth It? Alternatives & Best Practices
- Visual Guide: Breaking Down the Concepts
- Frequently Asked Questions (FAQ)
- Conclusion: What Should You Do Now?
- References / Sources
1. Introduction: The Rise of Digital Gold and the SEBI Advisory
Gold has always held a timeless allure for Indian investors — symbolizing wealth, stability, and security. Traditionally, Indians have invested in physical gold such as jewellery, coins, or bars. However, with the rapid growth of fintech and mobile investment platforms, a new digital alternative has captured public attention: digital gold, also known as e-gold. This innovation allows investors to buy fractional quantities of gold — sometimes starting from just ₹1 — through apps and online platforms. The purchased gold is claimed to be backed by physical gold stored securely in vaults, offering a convenient way to invest without the hassle of storage or purity concerns.
But as digital gold’s popularity soars, regulators have started to raise important red flags. On 8 November 2025, the Securities and Exchange Board of India (SEBI) issued a public advisory cautioning investors about the potential risks associated with such products. SEBI clarified that digital gold or e-gold is not classified as a security or a regulated commodity derivative, meaning these offerings do not fall under SEBI’s jurisdiction. Consequently, investors lack the legal protection and oversight that typically applies to regulated financial instruments.
This advisory is crucial because many consumers may be unaware of these distinctions. While digital gold offers accessibility and ease of investment, the absence of regulation introduces serious counterparty, storage, and fraud risks. Investors could face challenges in verifying whether the gold backing their purchase truly exists or remains safely stored.
In this blog, we’ll break down what SEBI’s warning means, how regulated and unregulated gold products differ, and what investors should know before venturing into the glittering — yet risky — world of digital gold investments
2. What Is “Digital Gold” / E-Gold? How It Works
Before understanding the SEBI advisory on digital gold, it’s essential to grasp what this new-age investment really means and how it operates in practice.
Understanding Digital Gold: The Concept
Digital gold or e-gold refers to a modern, online form of investing in gold through mobile apps, fintech platforms, or e-commerce websites. Instead of purchasing physical coins or jewellery, investors can buy tiny fractions of gold — as little as 0.1 gram — at live market prices. These platforms claim to store an equivalent quantity of physical gold in secure vaults on behalf of the buyer. In most cases, investors can either redeem their holdings for physical coins or jewellery later, or sell them digitally when prices rise.
This fractional, on-demand access has made digital gold particularly attractive to young investors and first-time savers, combining the traditional value of gold with the convenience of digital payments.
How Digital Gold Works in Practice
When you purchase gold digitally, the app or platform executes a transaction at real-time market rates and issues a confirmation stating the quantity of gold bought. The platform’s custodian or vaulting partner supposedly stores this gold and may even insure it. Over time, you can track the value of your holdings online and decide to sell or convert them into physical form.
The major fintech and payment apps in India — such as PhonePe, Paytm, or Google Pay — have partnered with private digital gold providers to enable these transactions. However, it’s important to note that these providers operate under commercial contracts, not under SEBI or RBI supervision.
Key Questions Investors Must Ask
Despite the ease and flexibility, investors must pause and ask critical questions:
- Is the gold actually physically stored and regularly audited?
- Does the investor legally own that gold or merely hold a claim on it?
- What happens if the digital platform or vault provider shuts down?
- Is there any regulatory protection if disputes arise?
The Core Issue: Convenience vs. Regulation
In short, digital gold is a fintech convenience product, not a regulated investment instrument. While it offers flexibility and accessibility, its unregulated nature makes it prone to counterparty and operational risks — the very reason behind SEBI’s recent caution to investors.
3. SEBI’s Advisory in Detail: Key Messages & Highlights
As digital gold gains immense popularity across India, the Securities and Exchange Board of India (SEBI) has stepped in with an important public warning. On 8 November 2025, through Press Release No. 70/2025, SEBI issued a detailed advisory highlighting the regulatory vacuum around so-called digital gold or e-gold products. This advisory serves as a crucial wake-up call for millions of investors who may be unknowingly participating in an unregulated investment segment.
Below, we break down SEBI’s key messages and what they mean for investors in plain, human-friendly terms.
1. Unregulated Status: Outside SEBI’s Purview
The first and most important takeaway from SEBI’s statement is the unregulated nature of digital gold. According to the advisory, these products are “neither notified as securities nor regulated as commodity derivatives.” This means they do not fall under SEBI’s jurisdiction and therefore operate outside India’s formal regulatory framework.
In simple terms, buying digital gold through a fintech app is not the same as investing in a SEBI-registered mutual fund, stock, or commodity derivative. There is no government-mandated oversight, audit, or compliance check to ensure investor safety.
2. No Investor Protection Mechanisms
A major concern raised by SEBI is the absence of investor protection. Since digital gold is not a regulated security, investors who buy it do not enjoy the legal safeguards available under SEBI-supervised markets.
This includes no grievance redressal system, no arbitration process, and no compensation mechanism in case of fraud, default, or mismanagement by the platform. As SEBI clearly states, “None of the investor protection mechanisms under the securities market purview shall be available for investments in such Digital Gold/E-Gold products.”
Essentially, if a digital gold provider goes bankrupt or mishandles investor holdings, you have no formal recourse through SEBI or stock exchange channels.
3. Potential Risks for Investors
The advisory also highlights the significant risks associated with these products. Investors could face multiple vulnerabilities such as:
- Counterparty Risk: The platform or its gold custodian could default or fail to honour redemptions.
- Operational Risk: The physical gold claimed to be stored in vaults may not exist, be under-insured, or not properly audited.
- Transparency Risk: Many digital gold providers do not clearly disclose ownership structures, storage details, or redemption policies.
These risks are not hypothetical — several past cases have seen disputes over whether investors actually own the underlying gold or merely hold a claim against a private company.
4. Regulated Alternatives Exist
Importantly, SEBI’s message is not anti-gold investment. The regulator emphasises that there are safer, regulated avenues to gain exposure to gold within India’s financial system. These include:
- Gold Exchange-Traded Funds (ETFs): Offered by SEBI-registered mutual funds, giving transparent and liquid gold exposure.
- Exchange-Traded Commodity Derivatives: Available on recognised exchanges under SEBI supervision.
- Electronic Gold Receipts (EGRs): Recently introduced instruments that represent gold stored in accredited vaults and traded on stock exchanges.
All of these options are backed by strict regulations, audits, and investor protection norms, ensuring higher transparency and accountability than digital gold sold via unregulated apps.
5. Advisory to Intermediaries and Advisers
SEBI’s warning extends beyond retail investors. It has directed investment advisers and intermediaries to refrain from promoting or dealing in unregulated digital gold products. Engaging in such activities could amount to unregistered or illegal financial intermediation under SEBI rules.
This move aims to prevent the blurring of lines between regulated advisory services and speculative fintech offerings.
Summing Up: Convenience Without Regulation Is a Risky Mix
In essence, SEBI’s advisory is a strong caution against misplaced trust in marketing claims. While digital gold is advertised as an easy and modern way to invest, many platforms operate completely outside the regulatory ecosystem. That means no investor protection, no oversight, and no guaranteed redemption.
For those seeking gold exposure, SEBI urges investors to stick to regulated instruments like ETFs or EGRs, where your rights and holdings are legally protected. The shine of digital gold may be attractive — but as SEBI reminds us, true safety lies in transparency and regulation.
4. Where Gold Investments Are Regulated: ETFs, EGRs & Commodity Derivatives
To understand SEBI’s recent advisory against digital gold, it’s crucial to see what regulated gold investments actually look like. India offers several legitimate, SEBI-supervised ways to gain exposure to gold — namely Gold Exchange-Traded Funds (ETFs), Electronic Gold Receipts (EGRs), and commodity derivative contracts. These instruments operate within a transparent and audited regulatory ecosystem designed to protect investors and ensure accountability.
1. Gold Exchange-Traded Funds (Gold ETFs)
Gold ETFs are mutual fund schemes that invest in physical gold of 99.5% purity. Each ETF unit represents a specific quantity of gold, and investors can buy or sell these units on stock exchanges just like shares.
Gold ETFs are fully regulated by SEBI, which governs mutual funds and the broader securities market. This regulation ensures that:
- The underlying gold is stored in secure, audited vaults.
- Fund houses and custodians must disclose holdings, charges, and performance regularly.
- Investors can rely on a transparent pricing mechanism linked to market rates.
For those seeking to invest in gold without handling physical metal, Gold ETFs offer a safe, liquid, and transparent alternative. They are ideal for retail and institutional investors alike who prefer regulated exposure to the gold market.
2. Electronic Gold Receipts (EGRs)
Electronic Gold Receipts (EGRs) are a newer innovation under SEBI’s framework. An EGR represents ownership of physical gold stored in recognized vaults, and these receipts can be traded on recognized stock exchanges.
Essentially, EGRs digitize physical gold ownership, bridging the gap between the physical and financial markets. Every gram of gold is accounted for, and investors have the assurance of:
- Regulatory oversight by SEBI.
- Verified storage in accredited vaults.
- Audit trails ensuring traceability and purity.
EGRs are considered a secure and transparent way to invest in gold digitally — unlike unregulated digital gold products, which often lack verification or investor protection mechanisms.
3. Commodity Derivatives: Gold Futures and Options
Another SEBI-regulated avenue is gold derivatives trading — including futures and options contracts listed on recognized commodity exchanges like MCX. These contracts allow investors and traders to speculate on or hedge against gold price movements without owning physical gold.
In 2015, SEBI took over regulation of India’s commodity derivatives market to strengthen transparency and reduce risks. Since then, all commodity exchanges and intermediaries must comply with SEBI’s rules on:
- Margin requirements and risk management.
- Disclosure standards for all trading participants.
- Investor grievance redressal and auditing processes.
Gold derivatives are best suited for experienced investors and hedgers, but they play an important role in maintaining price discovery and liquidity in the gold market.
Why Regulated Gold Instruments Matter
As SEBI clearly stated:
“SEBI has enabled investments in gold and gold-related instruments through various SEBI-regulated gold products — exchange-traded commodity derivative contracts, Gold Exchange-Traded Funds (ETFs) offered by Mutual Funds, and Electronic Gold Receipts (EGRs) tradeable on stock exchanges.”
This distinction is critical. Regulated gold investments operate under strict frameworks that require:
- Periodic audits and public disclosures.
- Registered intermediaries accountable to SEBI.
- Investor grievance mechanisms for dispute resolution.
- Transparency in pricing and operations.
By contrast, unregulated instruments like digital gold lack these safeguards. Investors risk losing money if a platform fails, mismanages storage, or misrepresents its gold holdings.
For investors seeking stability and security, regulated gold products such as ETFs, EGRs, and gold derivatives remain the safest routes. They combine the timeless appeal of gold with the trust and transparency of SEBI’s oversight.
Before investing in any “digital” or “innovative” gold offering, ensure it’s part of this regulated framework — because when it comes to gold, regulation is the real hallmark of purity.
5. Risks of Unregulated Digital Gold Products
The core of SEBI’s warning lies in the risk dimension. Let’s break down the chief risk categories and why they matter in the context of digital gold:
5.1 Counterparty Risk
If a digital gold provider (app/platform) does not actually hold the backing gold, or if the vaulting/insurance arrangements fail, the investor may lose value. Since the product is unregulated, if the provider becomes insolvent, there may be no claim under a regulated framework.
5.2 Operational Risk
Storage, audit, redemption can fail. For instance:
- Is the gold physically held in segregated vaults?
- Are audits of holdings published?
- Is the redemption chain transparent (convert to jewellery or coins)?
- Are there hidden fees/spreads?
Platforms often charge GST at purchase, spread between buy and sell, or restricting redemption in certain circumstances. For example, Reddit commentary notes:
“Digital gold is neither regulated by SEBI nor by RBI… so there is risk.”
5.3 Liquidity Risk
Unlike ETFs or EGRs which trade on exchanges, some digital gold might only allow redemption via the platform or conversion to jewellery – that may reduce flexibility and increase cost.
5.4 Lack of Investor Protection
Since these are not securities or regulated commodity derivatives, investor protection mechanisms such as investor education, grievance redressal, audit oversight, periodic disclosures might not apply. SEBI explicitly states:
“Investors/participants are made aware that none of the investor protection mechanisms under securities market purview shall be available for investments in such Digital Gold/E-Gold products.”
5.5 Potential for Mis-selling or Misunderstanding
Marketing often emphasises “buy gold from Re. 1”, “redeem later for coins”, “physical backing” – but fails to emphasise regulatory status, redemption terms, fees, spread or what happens if the platform fails. The SEBI advisory is motivated by rising consumer exposure via fintech.
5.6 Hidden Costs / Spread
Some digital gold platforms charge higher spreads (difference between buy and sell price) as well as GST at purchase (3 %) and may not cover all costs transparently. For example, Reddit users reported spread costs of 3 % plus GST.
6. Data and Market Context: Gold Demand, Digital Platforms, Fintech Penetration
Putting SEBI’s warning into context requires looking at how gold investing is evolving in India.
- India remains one of the largest consumers of gold globally. Yet physical gold comes with storage, security and cost issues — which drives interest in digital/fintech models.
- Fintech platforms (apps, UPI wallets) have introduced digital gold offerings: e.g., invest starting from ₹100, hold digital units, redeem for coins or jewellery.
- The regulatory spotlight has sharpened due to increasing usage and the fact that many such platforms may be unregulated.
- While I did not locate large publicly-released data on the total size of digital gold holdings in India, SEBI’s warning implies the scale and reach is material enough to require regulatory attention.
- Given rising gold prices in 2025 (due to global uncertainties, inflation, currency movements), many investors seek gold exposure — which may push more to digital gold platforms. Thus the timing of this advisory is significant.
Further, industry commentary suggests that digital gold may have built-in cost disadvantage compared to regulated instruments due to GST and spreads. For example, users reported effective loss of ~4-6 % upfront in some platforms.
Thus, the advisory is not just theoretical: it addresses a product trend that intersects convenience, fintech marketing, and investor risk.
7. Investor Insights & Opinion: Is Digital Gold Worth It? Alternatives & Best Practices
From the foregoing, here are my insights and practical take-aways for investors considering gold exposure:
7.1 When digital gold might make sense
- If you want ultra-small tickets (₹100 or less) and purely speculative exposure to gold and you understand the risks.
- If the platform is transparent in backing, provides audited vault holdings, easy redemption, and you view this as a convenient “budget” way to accumulate gold exposure — but with full awareness of lack of regulatory protection.
- If you treat it as quasi-physical gold plus convenience, not as regulated investment.
7.2 Why regulated products may be superior for many
- Gold ETFs or EGRs have regulatory oversight (via SEBI) and typically trade on exchanges, giving transparency, audit trails, liquidity and investor protection.
- Lower hidden spread and cost (depending on platform).
- Better suited if you are making gold a meaningful part of your portfolio, not just casual exposure.
7.3 My opinion on digital gold vis-à-vis regulated options
While digital gold offers interesting convenience, it often comes with higher cost (spread + GST), and with the critical disadvantage of being unregulated. For an investor who values transparency, cost efficiency and protection, regulated gold exposure (via ETFs) is more robust. I would treat digital gold more like a convenience/novelty product than a core component of a portfolio. Until the regulatory regime is clarified (maybe future reforms will bring oversight), caution is warranted.
7.4 Best practices if you still go ahead with digital gold
- Check backing: How much physical gold is held per unit? Is it audited? Who is the vault provider?
- Redemption terms: Is there a straightforward redemption into physical gold or jewellery/coins? What are the fees/spread?
- Costs/spread: Understand buy price vs sell price differences, GST implications, platform charges.
- Provider credibility: Are they transparent, regulated for some parts (vaulting), what happens if they default?
- Use regulated alternatives too: Even if you invest via digital gold, consider holding a regulated gold ETF/EGR as your core.
- Treat risk accordingly: Because SEBI says investor protection is absent, allocate only what you can accept risk on.
7.5 Potential regulatory changes ahead
SEBI’s advisory signals that regulators are alert. It is possible that future reforms may bring digital gold platforms under some regulation (or regulators may clarify jurisdiction). Investors should monitor for policy updates.
8. Visual Guide: Breaking Down the Concepts
A. What digital gold platforms show vs reality
B. Comparison: Regulated gold product vs Unregulated digital gold
C. Risk pathways in unregulated investment
9. Frequently Asked Questions (FAQ)
Q1. Is digital gold illegal?
No — it is not illegal per se. However, it is unregulated by SEBI if it’s not a notified security or commodity derivative. That means it operates outside SEBI’s investor-protection framework.
Q2. Do all digital gold platforms lack regulation?
While the advisory suggests many are outside SEBI, you should check if a specific platform is regulated, audited, and transparent. The general caution is that many are not.
Q3. If I buy digital gold and the company fails, can I get my money back via SEBI mechanisms?
No — SEBI has explicitly stated that “none of the investor protection mechanisms under securities market purview shall be available” for such products.
Q4. What are the fees or hidden costs in digital gold?
Examples: GST at purchase (3 % as per some analyses), spread between buy/sell price, storage or vaulting fees, redemption fees. A Reddit user noted ~4-6 % effective cost in some platforms.
Q5. Are gold ETFs or EGRs completely risk-free?
No investment is completely risk-free. But they are regulated, have audit and disclosure requirements, and operate in established markets. So relative to unregulated digital gold, they have stronger protections.
Q6. If I bought digital gold earlier, what should I do now?
– Review the platform’s terms, understand backing gold, redemption process, fees.
– Decide if you want to hold it as is, or shift part of your exposure to regulated instruments.
– Diversify: don’t allocate your full gold exposure only to digital gold.
– Stay updated on regulatory developments about digital gold.
10. Conclusion: What Should You Do Now?
The SEBI advisory on 8 November 2025 is an important wake-up call for investors. The message is clear: many digital gold/e-gold products offered via online platforms are outside SEBI’s regulatory oversight, and therefore, carry heightened risks. For many retail investors seeking gold exposure, convenience should not override regulatory protections, cost transparency and liquidity.
If you already invest or are considering investing in digital gold, take these steps:
- Clarify the nature of what you are buying — is it a regulated instrument or an unregulated platform product?
- Understand all costs, redemption pathways and counter-party risks.
- Consider using regulated alternatives such as gold ETFs and EGRs for the bulk of your gold exposure, reserving digital gold (if at all) for a small speculative portion.
- Monitor policy/regulatory updates from SEBI and other regulators on this front.
In short: digital gold may offer convenience, but convenience doesn’t equate to protection. Let your investment decisions be guided not just by marketing promise but by regulatory clarity, transparency and aligned risk profile.
11. References / Sources
- “Thinking of buying digital gold? SEBI warns it’s not a regulated product” – India Today. [Link]
- “Significant Risk”: SEBI Warns Against Investing In Digital Gold Products – NDTV. [Link]
- “Sebi warns people against investing in digital gold products, flags risks” – Business Standard. [Link]
- “No protection for digital gold? Sebi cautions investors buying unregulated products” – Mint. [Link]
- “Sebi cautions public against Digital Gold investments offered by unregulated platforms” – BusinessToday. [Link]
- “SEBI Warns Investors Against Digital Gold Deals” – TaxGuru. [Link]
- Reddit commentary on digital gold risks and SEBI warning. [Link]
Comments
Post a Comment