Digital gold companies may approach government if Sebi declines calls for regulation

On 8 November, Sebi warned investors that digital gold was not under its ambit, clarifying that it did not fall under securities laws and was not classified as a commodity derivative. Following this, the association sent a letter to Sebi on 10 November, asking it to regulate digital gold.

The letter read, “We have been approached by various digital gold companies. They have shown their willingness to be regulated either through Sebi or any other regulator as suggested by you." It added, “We strongly feel that issuing caution is a welcome step, but issuing guidelines to regulate the same would help investors as well as digital gold companies."

The industry has long demanded regulation to weed out fraudulent players and offer customers a formal grievance-redressal mechanism, but with little success. “If Sebi does not wish to regulate digital gold, the industry will create a self-regulatory organisation (SRO) and approach concerned government authorities for approval," said Surendra Mehta, national secretary at IBJA. “We are interested in complete transparency," he added.

Fintech platforms offering digital gold saw a near threefold jump in user withdrawals after Sebi’s warning, Business Standard reported on 12 November. “We are asking our clients to not get into digital gold. If they have taken small exposure, we are asking them to move away to a legitimate, Sebi-regulated gold product through a Sebi-registered broker," said Abhishek Kumar, founder and chief investment advisor at Sahaj Money, a financial planning and investment advisory firm.

Sebi did not respond to Mint's queries on the matter.

‘Not optimistic’

Digital gold companies have held several meetings on the matter over the past few days, according to two people familiar with the matter. The industry isn’t optimistic about Sebi's response to the letter, they added. “The circular was clear that Sebi does not want to regulate digital gold," one of these people said, adding, “Digital gold companies may approach the ministry of corporate affairs or the ministry of finance for help on regulation."

Sidharth Kumar, senior associate at BTG Advaya, a disputes and transactional law firm, said, “Digital gold companies should regulate themselves through an SRO, similar to the Association of Mutual Funds in India (AMFI). Regulation by Sebi or any regulator could increase compliance costs for the platforms and may diminish the arbitrage between physical and digital gold."

He added, “Soft regulations by SRO could help keep a watch and investors could approach the Central Consumer Protection Authority or consumer courts as consumers of digital gold platforms."

Digital gold is a way to invest in gold electronically by buying fractions of physical gold, which is stored on your behalf in secure, insured vaults. It offers convenience and low entry points, allowing you to invest small amounts and track its value in real-time. It operates differently from regulated gold instruments such as gold ETFs.

Data from the National Payments Corporation of India (NPCI) shows the number of UPI-based digital gold purchases has surged in 2025, rising to 115.95 million in October from 50.93 million in January, when NPCI first started sharing this data. In value terms, UPI purchases trebled to ₹2,290.4 crore over the same period. According to management consulting firm Technopak Advisors, India’s digital gold holdings stood at 25 tonnes in FY25 and is estimated to double by FY30.

Regulatory vacuum

The biggest concern with digital gold is that it operates in a regulatory vacuum, overseen neither by Sebi nor the Reserve Bank of India. If a platform or distributor were to face a liquidity crisis or collapse altogether, buyers would have limited recourse.

The lack of oversight also means there is no formal verification of the physical gold backing users’ holdings, including checks on purity, quantity or vault management. While established players such as MMTC-PAMP maintain full physical backing for their digital gold and undergo regular independent audits, the same level of assurance may not exist for smaller providers, increasing counterparty risk.

Pricing is another challenge. Rates vary across platforms owing to differences in markups, transaction charges, payment gateway fees, and other costs. These typically amount to around 2-3% of the price, in addition to the 3% GST that applies to gold purchases.

The government has the power to classify digital gold as a security by issuing a notification under the Securities Contracts (Regulation) Act, 1956 (SCRA), which allows it to declare any instrument or class of instruments as a security. If the government were to do this, it would allow Sebi to regulate the issuance, trading, and custody of digital gold under the SCRA.

An example of how products linked to gold can be brought under formal regulation is the Electronic Gold Receipts (EGR) framework. Until 2021, gold trading in India lacked a uniform, transparent, exchange-based mechanism. To address this, the government amended the SCRA to classify EGRs as securities. This allowed Sebi to design and implement a full regulatory framework for EGRs, detailing standards for vault managers, the process of converting physical gold into EGRs, trading and settlement rules, and investor-protection mechanisms.

Previous calls ignored

Before this, the most recent attempt at securing regulations for digital gold was in 2021, after the National Stock Exchange (NSE) instructed its members, including stockbrokers, to stop offering digital gold on their platforms. The move followed Sebi’s observation that certain brokers were facilitating digital gold trades for their clients.

In response, digital gold providers issued public statements urging Sebi to establish a regulatory framework for the product and to contain speculation that digital gold was being banned. Digital gold provider Augmont said on 11 September 2021, “Sebi’s involvement as a regulator would enhance investor confidence in this asset class. Overall participation will increase as customers will be allowed to buy gold as a digital asset." Sebi, however, did not budge from its stance.