Digital Gold Explained: Why SEBI Has Issued an Advisory and What You Should Know Before You Buy
The Securities and Exchange Board of India (SEBI) has recently issued a strong advisory warning investors about the risks associated with digital gold investments. While several online platforms promote digital or e-gold as a modern and convenient alternative to physical gold, SEBI has clarified that these products operate outside its regulatory framework, leaving investors exposed to potential financial and operational risks.
What Is Digital Gold ?
Digital gold allows investors to purchase small quantities of gold through online platforms or mobile apps. The concept is simple - users buy gold virtually, and the platform claims to store an equivalent amount of 24-karat physical gold in secure vaults. Investors receive a digital certificate reflecting their ownership and can choose to sell the gold online or request physical delivery at any time.
This model has gained popularity among younger investors due to its convenience, transparency, and the flexibility to invest in gold without worrying about physical storage or safety.
How Does Digital Gold Work ?
To understand how digital gold investment functions, here’s a step-by-step breakdown:
While this system appears straightforward, the absence of regulatory oversight raises serious concerns about investor safety.
SEBI’s Warning: Why Digital Gold Is Risky
In its advisory, SEBI made it clear that digital gold products are neither recognised as securities nor regulated as commodity derivatives.
“Such digital gold products are different from SEBI-regulated gold instruments as they operate entirely outside SEBI’s purview,” the regulator stated.
This means that if any issue arises - such as disputes, fraud, or non-delivery - investors have no formal protection or legal recourse through SEBI. Essentially, these products function in a regulatory grey zone.
Expert Take: Choose Regulated Avenues
According to Anindya Banerjee, Head of Commodity and Currency at Kotak Securities, investors should avoid unregulated digital gold schemes.
“As these products fall outside SEBI’s regulatory purview, they lack investor protection safeguards. Opt for SEBI-regulated options such as Gold ETFs, Sovereign Gold Bonds (SGBs), or commodity derivatives on MCX and NSE to reduce counterparty and operational risks,” he advised.
These alternatives provide similar exposure to gold but with far greater security and legal protection.
Taxation Rules for Digital Gold
Just like physical gold, digital gold purchases attract Goods and Services Tax (GST). The rate may vary depending on how the provider structures the product.
When investors sell digital gold, any profit earned is considered a capital gain, and the applicable tax rate depends on the holding period - short-term or long-term.
Safer Alternatives to Digital Gold
If you’re looking to invest in gold securely, SEBI recommends these regulated options:
Be Cautious Before You Click ‘Buy’
The rise of digital gold investments may seem appealing due to their simplicity and accessibility, but investors should exercise caution. Since these products are not regulated by SEBI, they come with inherent risks related to storage, transparency, and accountability.
For safer, long-term wealth creation, experts advise sticking to SEBI-regulated gold instruments that ensure investor protection and transparency.
What Is Digital Gold ?
Digital gold allows investors to purchase small quantities of gold through online platforms or mobile apps. The concept is simple - users buy gold virtually, and the platform claims to store an equivalent amount of 24-karat physical gold in secure vaults. Investors receive a digital certificate reflecting their ownership and can choose to sell the gold online or request physical delivery at any time.
This model has gained popularity among younger investors due to its convenience, transparency, and the flexibility to invest in gold without worrying about physical storage or safety.
How Does Digital Gold Work ?
To understand how digital gold investment functions, here’s a step-by-step breakdown:
- Investors purchase gold through a trusted app or website.
- The platform credits an equivalent amount of gold (measured in grams) to their account.
- The gold is stored securely in insured vaults managed by custodians.
- Investors can either sell the digital gold instantly or request home delivery of physical gold.
While this system appears straightforward, the absence of regulatory oversight raises serious concerns about investor safety.
SEBI’s Warning: Why Digital Gold Is Risky
In its advisory, SEBI made it clear that digital gold products are neither recognised as securities nor regulated as commodity derivatives.
“Such digital gold products are different from SEBI-regulated gold instruments as they operate entirely outside SEBI’s purview,” the regulator stated.
This means that if any issue arises - such as disputes, fraud, or non-delivery - investors have no formal protection or legal recourse through SEBI. Essentially, these products function in a regulatory grey zone.
Expert Take: Choose Regulated Avenues
According to Anindya Banerjee, Head of Commodity and Currency at Kotak Securities, investors should avoid unregulated digital gold schemes.
“As these products fall outside SEBI’s regulatory purview, they lack investor protection safeguards. Opt for SEBI-regulated options such as Gold ETFs, Sovereign Gold Bonds (SGBs), or commodity derivatives on MCX and NSE to reduce counterparty and operational risks,” he advised.
These alternatives provide similar exposure to gold but with far greater security and legal protection.
Taxation Rules for Digital Gold
Just like physical gold, digital gold purchases attract Goods and Services Tax (GST). The rate may vary depending on how the provider structures the product.
When investors sell digital gold, any profit earned is considered a capital gain, and the applicable tax rate depends on the holding period - short-term or long-term.
Safer Alternatives to Digital Gold
If you’re looking to invest in gold securely, SEBI recommends these regulated options:
- Gold Exchange Traded Funds (ETFs): Traded on stock exchanges, offering liquidity and transparency.
- Sovereign Gold Bonds (SGBs): Backed by the Government of India, they pay interest and eliminate storage worries.
- Commodity Derivatives: Traded on recognised exchanges like MCX and NSE, these allow investors to hedge or speculate with regulatory oversight.
Be Cautious Before You Click ‘Buy’
The rise of digital gold investments may seem appealing due to their simplicity and accessibility, but investors should exercise caution. Since these products are not regulated by SEBI, they come with inherent risks related to storage, transparency, and accountability.
For safer, long-term wealth creation, experts advise sticking to SEBI-regulated gold instruments that ensure investor protection and transparency.
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