Digital gold and other e-gold products offered on online platforms have come under scrutiny, with the Securities and Exchange Board of India (SEBI) flagging them as a major risk and cautioning the public about the risks of buying such products. Other alternatives, such as e-plans and digital gold offered by reputed jewellery brands, albeit risky, may be considered judiciously.
Last month, SEBI released a press notification stating that several online platforms allow investors to buy “digital gold/e-gold”—i.e., buying gold in fractional form via apps/websites without holding physical bars or coins. SEBI emphasised explicitly these products are explicitly not recognised as securities, nor regulated like commodity derivatives. They fall outside SEBI’s regulatory purview.
As a result, investor protections typical of the securities market (disclosure requirements, custody rules, compensation mechanisms, regulatory oversight) do not apply to these unregulated digital gold arrangements.
SEBI warned of two principal risk-categories: counterparty risk (the risk that the platform or vaulting service defaults) and operational risk (for example, inadequate backing of gold, improper storage or record-keeping).
Importantly, SEBI did not ban digital gold but strongly urged caution, emphasising that investors should treat such products as higher-risk, as they fall “outside regulated territory”.
Safest options to invest in gold
Given the regulatory caution, investors looking for safer ways to gain gold exposure should consider the following regulated alternatives:
Gold Exchange-Traded Funds (ETFs): These are mutual-fund-style products regulated by SEBI, traded on stock exchanges, and backed by physical gold (or gold futures) with transparent pricing and custody arrangements.
Electronic Gold Receipts (EGRs). These are instruments representing gold holdings held in vaults, tradable on recognised exchanges and under regulatory oversight.
Commodity derivatives (gold futures) are traded on regulated exchanges like the Multi-Commodity Exchange of India (MCX). These also fall within regulatory frameworks and provide gold exposure with defined margin/settlement rules.
Purchase of physical gold from leading trusted jewellery firms, although this may have storage, purity and liquidity concerns.
It is important to take into consideration the transparency of backing, i.e., is each unit backed 1:1 by physical gold, vaulting or custody audits, redemption rights, i.e., can one convert the digital gold to physical gold or cash easily, the regulatory oversight and clarity of fees, including storage fees and buying versus selling. Remember, the golden rule is that the convenience of buying from an app doesn’t justify the absence of regulatory protection.
For those who already hold digital gold via unregulated platforms, the advice emerging is to review the platform’s credibility rather than necessarily panic-sell, but shift a significant portion of gold exposure into regulated instruments if their holding is substantial or the platform lacks transparency.
Leading jewellery brands offer digital gold backed by safe gold, enabling buyers to purchase in small quantities. These promise 24-karat 995 fineness with custody from third parties and insurance backing. Buyers can convert the digital gold into physical jewellery from their retail stores or sell it back on their online platform. Although they fall outside the purview of SEBI and RBI, being a leading brand with many years in operation, customers may invest after examining the pros and cons.
With the strong brand credibility, trusted vault partner and reasonable features, this still carries the same regulatory gap flagged by SEBI — i.e., the product is not regulated as a security, and the investor protections of SEBI’s framework do not apply. That means that even a trusted brand does not convert the product into a fully “regulated gold investment” under SEBI’s regime.
From an investor’s viewpoint, gold schemes offered by leading jewellery brands can be considered relatively safer among digital gold options, especially due to the brand, vaulting partner, and redemption flexibility.
Practical takeaways for investors
Where your goal is core gold exposure (long-term holding, liquidity, safety): prioritise regulated products such as Gold ETFs, EGRs, and commodity derivatives under SEBI.
When you choose digital gold for convenience (small amounts, easy entry): do so only after verifying the platform’s transparency, custodian arrangement, redemption mechanism and accept that you are taking extra risk.
Digital Gold offered by leading jewellery companies may be treated as a “premium digital gold” offering — not fully regulated but better than many unknown fintech players — but still with an inherent regulatory gap.
If you already hold digital gold, review your holdings, ask the right questions (vault location, audit frequency, redemption terms, platform stability) and consider shifting part of your allocation to regulated gold products, especially if your exposure is large.
In conclusion, SEBI’s warning is a timely reminder that gold’s popularity and the convenience of digital platforms may hide latent risks. As gold remains a valuable asset class, the regulation-safe route offers stronger protection, transparency and legal recourse. Platform-based digital gold offerings by jewellery companies provide a more consumer-friendly mode of entry — but carry the same regulatory gap as all other unregulated digital gold products. Smart investors will mix these: use regulated products for the bulk of gold exposure, and if desired, deploy digital gold for smaller, more tactical investments while staying alert to platform risk and redemption rights.
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File Photo: Xinhua/U Aung/IANS
