The Securities and Exchange Board of India (Sebi) has issued a caution to investors about the rising popularity of digital gold apps offered by fintech platforms. These apps allow users to buy and store gold digitally, often in small amounts, without holding physical gold.

While convenient, Sebi has emphasized that many of these platforms are unregulated, do not qualify as securities or commodity derivatives, and operate outside the protections offered by the regulator. “Such digital gold products are different from Sebi-regulated gold products as they are neither notified as securities nor regulated as commodity derivatives,” Sebi said.

Hidden Dangers of Digital Gold

Experts have highlighted that digital gold carries significant risks. Abhishek Kumar, a Sebi-registered investment advisor, explained that since these platforms are not monitored by the regulator, investors face counterparty and operational risks. There is no guarantee that the gold purchased actually exists or is safely stored.

“As these apps are not regulated and lack regulatory supervision, it’s difficult to identify which ones are safe and which are not,” he said. “There’s the possibility of counterparty risk, the platform may fail to deliver gold or default on redemption. Additionally, there’s operational risk around whether the gold actually exists or is stored securely, Kumar told India Today.”

If the platform shuts down, delays redemption, or mismanages holdings, investors have no legal recourse under Sebi’s framework. Unlike mutual funds or stockbrokers, digital gold apps are self-regulated, making it difficult for users to assess their safety.

Gold ETFs and EGRs: A Safer Bet

For those looking to invest in gold safely, Sebi recommends regulated products such as Gold Exchange-Traded Funds (ETFs) and Electronic Gold Receipts (EGRs). Gold ETFs are mutual fund schemes that invest in physical gold, with each unit representing a fixed quantity. The gold is held with authorized custodians and regularly audited, ensuring transparency and protection.

Similarly, EGRs traded on stock exchanges provide regulatory safeguards. These instruments offer investor protection, legal recourse, and liquidity, advantages that digital gold platforms cannot guarantee.

Convenience Comes at a Cost

Digital gold has gained traction due to its ease of use and accessibility. Investors can start with minimal amounts, track real-time prices, and redeem holdings online. However, experts caution that this convenience comes with potential risks.

Even apps backed by reputed partners are not immune to regulatory gaps, and users cannot independently verify the gold in storage. For long-term investment goals, shifting to regulated products ensures both security and transparency.

Investor Guidance from Sebi

Sebi’s advisory is not a ban on digital gold, but a clear message for investors to prioritize safety over convenience. Digital gold can be used for short-term or small-scale investments, but for sustained gold holdings, regulated products like Gold ETFs and EGRs are safer.

These products are governed by Sebi rules, audited regularly, and offer mechanisms for legal recourse in case of disputes. The regulator’s caution serves as a reminder that innovation without oversight can expose investors to hidden risks.

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