SEBI’s caution on digital gold seen as positive move for fintech platforms

Market regulator Securities and Exchange Board of India (SEBI) has cautioned investors against investing in digital gold products offered by unregulated platforms, clarifying that such instruments do not fall under its regulatory framework. The regulator added that several fintech platforms and apps are selling gold digitally without any supervision, exposing investors to operational and counterparty risks.

According to SEBI, digital gold is different from gold exchange traded funds and electronic gold receipts which are regulated investment products. Since digital gold is not classified as a security or commodity derivative, investors do not have the same level of protection available in the capital markets.

The warning comes at a time when digital gold has become a popular savings option among retail users through platforms such as SafeGold, Paytm, Google Pay, Paytm, Jar, Gullak, IndiaGold and PhonePe. These apps allow users to make small gold purchases and redeem them easily, but experts say the offerings operate in a grey area between physical and financial assets.

Deepak Abbot, co-founder of IndiaGold, said the company’s primary focus remains on gold monetization rather than digital gold. “Digital gold is not our focus at this stage and accounts for less than 1% of our business. Our understanding of the circular says that SEBI has clarified that they do not regulate digital gold, hence they cannot offer customer protection in case there is a fallout of a platform offering digital gold,” Abbot told Entrackr.

An industry expert, requesting anonymity, told Entrackr that many established players view SEBI’s circular as a positive step. “The advisory mainly targets bad actors that fail to audit or insure their physical gold, while larger players are already compliant. The industry association is also in talks with the regulator, and things seem to be moving in the right direction,” the person said.

The expert added that SEBI’s tone this time is more balanced compared to 2021, when the regulator had asked certain companies to stop selling digital gold. “Now, it’s simply clarifying that such products don’t come under investor protection,” the person noted, pointing out that the digital gold ecosystem has matured with participation from government-backed entities like MMTC and major banks.

Entrackr has reached out to PhonePe, Jar, Paytm and Gullak for comments.

Most players who have expanded offerings to include digital gold did so perhaps in the race to show higher transaction values, seeing the rise in prices of gold as well as interest in it. The invariable search for ‘deals’ across these platforms by deal addicted consumers is why many risk being taken for a ride by unscrupulous operators. In fact many Indian consumers who went to trade gold after the price spike have discovered the hard way that gold from the pre-hallmarked days has been sold with wide variances in purity, with jewellery buyers particularly hard hit. Jewellers we spoke to have informed us that gold jewellery offered for exchange has led to consumers discovering purity as low as 15-16 carat on gold marked 22 carat. Digital gold is supposed to take care of precisely such issues where gold is being considered as an investment, except that the dependence on the platform’s credibility is even higher than the jewellers you buy from, with no physical gold to show. Buyers should act accordingly.