SEBI’s investor protection mechanisms, which are applicable to securities, don’t shield investors from any risks associated with digital gold.
Following the advisory from the Securities and Exchange Board of India (SEBI), investors appear uncertain about how to approach investing in Digital Gold. While the decision to either continue or exit investment depends on an investor’s individual situation as well as the platform being used, SEBI’s advisory is clear and does not mince words. According to experts, the problem is not of immediate panic. While Digital Gold carries significant risks, the investment also depends on the identity of the seller and the mechanism used for storing gold.
SEBI’s investor protection mechanisms
Notably, it is also a fact that digital gold is not a regulated product. Thus, SEBI’s investor protection mechanisms, which are applicable to securities, don’t shield investors from any risks associated with it.
Earlier on November 8, SEBI’s advisory titled “Caution to the Public Regarding Dealing in ‘Digital Gold” read, “In this context, it is informed that such digital gold products are different from SEBI-regulated gold products, as they are neither notified as securities nor regulated as commodity derivatives. They operate entirely outside the purview of SEBI.”
Where to invest in gold?
In its advisory, SEBI has also mentioned that the public can make investments in safe, regulated gold products, which include Exchange Traded Commodity Derivative Contracts, Gold ETFs that are offered by Mutual Funds, as well as Electronic Gold Receipts (EGRs).
What is digital gold?
For those who are unaware of Digital Gold, it is a way in which investors tend to buy and own small amounts of gold through an online medium. The purchase is made through apps or websites. These mediums claim to store an equal amount of real 24K gold for buyers in secure vaults.
In India, on buying gold, whether in physical or digital form, an investor has to pay GST. The exact rate for digital gold depends on how the provider structures the product. If an investor sells off digital gold, the profit generated is treated as a capital gain, and the tax rate depends on how long it has been held.
(This article is for informational purposes only and should not be construed as investment, financial, or other advice.)
