SEBI Warns Public: Unregulated Digital Gold Carries Significant Risks, Unlike Gold ETFs

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The Securities and Exchange Board of India (SEBI) has warned investors to be cautious of the digital gold investment opportunities offered by Fintech applications. SEBI calls them unregulated and risky. According to the experts in the field, investors should shift their focus from digital gold to comparatively safer options like Gold ETFs and those that comply with the regulatory body. 

Why is Digital Gold Considered Unregulated and Risky?

Digital gold is a flashy fintech version of one of India’s oldest obsessions. The country’s market regulator wants investors to stop relying on fintech apps and has warned them against buying "Digital Gold" or "E-Gold" products offered by online platforms. 

A notice issued by SEBI read, “come to notice that some digital platforms are offering investors to invest in Digital Gold/E-Gold products. Such digital gold products are different from Sebi-regulated gold products as they are neither notified as securities nor regulated as commodity derivatives.” 

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According to SEBI, these digital platforms operate completely outside its jurisdiction, so if a digital gold platform collapses, the investment may be lost. As a result, the user won’t have any legal protection under SEBI’s investor safety framework.

SEBI-Approved Alternatives: The Safety Net of Gold ETFs and EGRs

SEBI wants investors to purchase regulated gold products, including Gold Exchange-Traded Funds (ETFs) and Electronic Gold Receipts (EGRs). Both of these trade on stock exchanges. Gold ETFs are fundamentally schemes like mutual funds that invest in physical gold. Its every unit represents a specific amount of gold, typically 1 gram. An authorised custodian holds the gold and audits it regularly.

Since ETFs trade on stock exchanges, investors can buy or sell units anytime. This happens through their demat accounts. Investors are still exposed to gold prices, but are also protected by SEBI's transparency and investor-protection framework.

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"These regulated products provide investor protection mechanisms, transparency, and legal recourse that unregulated digital gold platforms cannot offer, making them more suitable for long-term gold exposure,” highlighted SEBI. Gold ETFs and EGRs may not have the same instant appeal; however, they come with "accountability."