The warning holds significance as it comes amidst the increasing promotion of ‘digital gold’ by several online platforms, which claim that it is a convenient alternative to physical gold.
The Securities and Exchange Board of India (SEBI) has flagged ‘significant risks’ in making investments in digital or e-gold products, as it has warned investors against putting money into these options. The warning has come as these investments fall outside the regulatory body’s ambit and carry risks. The warning holds significance as it comes amidst the increasing promotion of ‘digital gold’ by several online platforms, which claim that it is a convenient alternative to physical gold.
What did SEBI say?
In its advisory, SEBI has clarified that these offerings were neither regulated as commodity derivatives nor classified as securities.
“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,” the market regulator said.
What is digital gold?
Digital gold is a method by which investors can buy and own small amounts of gold through an online platform. 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. The buyer gets a digital record, which shows the gold he/she owns.
This entails the facility of selling it back at any time or even requesting physical delivery. The digital gold’s biggest USP, which apps or websites claim is that it is an easy and convenient way to own gold.
Understanding how digital gold works:
- A customer invests money through an app or website.
- The platform credits an equivalent amount of gold (in grams) to his/her account.
- The provider or vault custodian stores physical gold in a secure, insured vault.
- The customer gets the option to sell the gold instantly on the platform or request physical delivery.
“As these products fall outside SEBI’s regulatory purview, they lack investor protection safeguards. Investors are encouraged to opt for SEBI-regulated avenues such as Gold ETFs, Sovereign Gold Bonds (SGBs), or commodity derivatives traded on MCX and NSE to mitigate counterparty and operational risks,” said Anindya Banerjee, Head Commodity and Currency, Kotak Securities.
In India, if any investor buys gold, whether in physical or digital form, he/she has to pay GST. However, the exact rate for digital gold can vary as it depends on how the provider structures the product. In case an investor sells 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.)
