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Digital Gold: Why SEBI Warns Investors to Stay Cautious?

 DigitalGold: Why SEBI Warns Investors to Stay Cautious?



As digital investment platforms gain popularity, many investors are turning to “Digital Gold” for convenience and accessibility. However, SEBI has issued a clear warning that digital gold operates outside its regulatory oversight and carries serious risks. Understanding these concerns is crucial for investors aiming to safeguard their wealth and choose safer, regulated alternatives.

Why SEBI Considers Digital Gold Unsafe?

1. Lack of Regulation
Digital gold is neither classified as a security nor recognized as a regulated commodity derivative under SEBI’s framework. This means platforms selling it; fintech apps, online portals, or jewellers; operate without formal regulatory supervision.

2. Counterparty Risk
Investors face the risk of platform failure or mismanagement. If the provider or vault custodian mishandles assets, fails, or engages in fraud, investors may have limited avenues to recover their holdings.

3. Operational Risk
Storage standards, insurance quality, and physical gold backing vary widely across platforms. In the absence of uniform norms or independent audits, the reliability of these arrangements remains uncertain.

4. No Investor Protection
Because digital gold is unregulated, investors do not enjoy protection under SEBI’s grievance redressal mechanism (SCORES) or stock exchange investor protection funds.

5. Hidden Costs
The convenience of digital gold often masks additional costs, including 3% GST on purchase, storage fees beyond a free period, and wide buy-sell spreads, which can significantly reduce overall returns.

Safer, Regulated Alternatives
SEBI recommends that investors seeking exposure to gold should do so through regulated avenues that offer transparency and security:

Gold Exchange Traded Funds (ETFs):
Fully regulated by SEBI, these funds are traded on stock exchanges and backed by physical gold held by approved custodians. They offer both liquidity and transparency.

Electronic Gold Receipts (EGRs):
Tradable on recognized exchanges, EGRs represent ownership of physical gold and provide a regulated structure for investing.

Sovereign Gold Bonds (SGBs):
Issued by the Reserve Bank of India on behalf of the government, SGBs carry a sovereign guarantee and offer a 2.5% annual interest in addition to gold price appreciation. While new tranches are launched periodically, existing bonds can be purchased through the secondary market.

For existing holders of digital gold, financial experts advise gradually transitioning to these regulated instruments after verifying the credibility and security arrangements of their current platform.

With warm regards,
Dr Shashank M Hiremath
DISM, B.Com, MBA, NET, M.Com (Banking), Ph.D.
Faculty of Finance, MBA Department
Presidency College and Business School, Bengaluru, Karnataka
LinkedIn: https://www.linkedin.com/in/shashankmh007 
Blog: https://meetshashankmh2000.blogspot.com/ 
Academician Researcher FinancialPlanner StockMarketTrader Investor Traveller
LinkedIn: https://www.linkedin.com/posts/shashankmh007_digitalgold-investors-sebi-activity-7396436278545858560-mULW?utm_source=share&utm_medium=member_desktop&rcm=ACoAAAmerZYBKQhvMRYFxKGLVAHXdIOJHSCP5W8
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