Sebi warns investors: Digital gold poses hidden risks without regulation
Mumbai – India’s market regulator, the Securities and Exchange Board of India (Sebi), has raised fresh alarms over the growing popularity of digital gold. Its latest advisory on November 8 warned investors that most online gold-buying platforms remain outside regulatory control and could expose users to hidden financial risks.
Digital gold allows users to buy, store, and sell gold through apps without holding it physically. It gained massive popularity for its ease and flexibility, especially among young investors. However, Sebi clarified that these products fall outside its supervision — and not under the Reserve Bank of India either.
Investment advisor Abhishek Kumar, founder of SahajMoney, said Sebi’s alert aims to educate users. “Sebi wants to warn investors that digital gold apps are not regulated. If these companies default, users cannot seek protection under Sebi rules,” he said.
Kumar explained that Sebi’s concern is not about banning digital gold, but about highlighting its risks. “The real issue is the absence of regulation,” he noted. “Since digital gold is neither a security nor a commodity derivative, Sebi does not monitor these platforms or the gold they claim to hold.”
Sebi’s notice underscored a crucial point — digital gold operates “entirely outside the purview” of the regulator. Thus, investor protection laws do not apply.
The lack of oversight raises two major concerns — counterparty risk and operational risk. Counterparty risk means that an app may fail to deliver gold or honor redemption requests. Operational risk means the gold may not exist or may not be securely stored.
Kumar warned that even if an app claims investors’ gold is stored in a vault, no authority verifies the claim. “If the company shuts down, investors may have no way to recover their gold,” he said.
Sebi’s caution has forced investors to rethink their strategies. Many now wonder whether to stay invested in digital gold or shift to safer options.
Kumar advised investors to take Sebi’s hint seriously. “Investors should move their digital gold holdings to regulated options like Gold ETFs or Electronic Gold Receipts (EGRs),” he suggested. Both products operate under Sebi regulation and offer clear safeguards.
Gold ETFs and EGRs trade on stock exchanges through registered intermediaries. They ensure transparency, security, and legal protection. Investors can also verify their holdings and trace transactions through regulated systems.
Digital gold, in contrast, offers convenience but little security. Buyers can invest as little as ₹10 and store it digitally, but they trust private companies entirely with their money.
As Sebi’s message highlights, convenience cannot replace safety. For short-term savings, digital gold may serve a purpose, but for long-term investments, experts recommend regulated options.
Sebi’s advisory does not ban digital gold. Yet, it exposes its weak foundation. Investors must weigh the ease of use against the absence of legal protection.
The regulator’s move comes at a time when millions of Indians use fintech apps for micro-investments. By flagging unregulated products early, Sebi hopes to protect retail investors from future financial shocks.
For now, digital gold remains in a grey zone — attractive yet risky. Investors should act with caution and prioritize regulated financial products that guarantee both value and security.
