Mint Explainer: Why Sebi has cautioned investors on ‘digital gold’ and what’s it suggesting instead

What has been Sebi’s latest communication?

In a statement issued on 8 November, the markets regulator said it has come to its notice that some digital platforms are offering investors the option to invest in ‘Digital Gold/E-Gold Products’, which is being marketed as an alternative for physical gold.

"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. Such digital gold products may entail significant risks for investors and may expose investors to counterparty and operational risks," it noted.

It advised investors to opt for Sebi-regulated gold products like exchange traded commodity derivative contracts, gold exchange traded funds (ETFs) offered by mutual funds, and Electronic Gold Receipts (EGRs) tradeable on stock exchanges.

Investments in these instruments can be made through Sebi-registered intermediaries and are governed by its regulatory framework.

This is not the first time Sebi has issued an advisory against digital gold. In 2021, it barred its regulated entities, including registered investment advisors (RIAs), from offering or recommending digital gold products to their clients. Following this, leading exchanges National Stock Exchange and Bombay Stock Exchange asked its members, including stockbrokers, to stop dealing in digital gold.

What exactly is digital gold?

Digital gold is the virtual form of owning physical gold, whereby people can buy, sell, and hold gold electronically, without the need for physical storage. Digital gold products were launched in India back in 2012-13. The segment operates through a two-tier system: an importer, who procures and stores the bullion in vaults, and a distributor (usually a fintech platform) that runs the app through which investors purchase gold, typically of 24-carat and 99.9% purity. Digital gold rates include storage fees and other charges levied by platforms and are thus higher than spot gold prices.

The biggest player in the segment is MMTC-PAMP, a joint venture between Swiss bullion brand PAMP SA and the Indian government-owned MMTC Ltd. Users can also buy digital gold through platforms such as Paytm, PhonePe, Google Pay, InCred Money, among others. Jewellers such as Tanishq, Jos Alukkas, and CaratLane, too, offer digital gold, which can also be redeemed as jewellery, coins or bars.

How has this segment performed?

Despite the recent bout of price correction, gold remains one of the top performing asset classes of this year so far, climbing nearly 60% in rupee terms. Intensifying geopolitical uncertainty, trade tensions exacerbated by US President Donald Trump's tariff threats, and record purchases by global central banks have propelled the yellow metal to lifetime highs this year—over $4,300 an ounce in global markets and above ₹132,000 for 10 grams in India, the world’s biggest consumer of the precious metal in calendar 2024, according to trade association World Gold Council.

Demand for digital gold too has surged in tandem with this bull run. According to data from the National Payments Corporation of India (NPCI), India's umbrella body for digital payments, the volume of digital gold purchases through UPI (unified payments interface) has more than doubled in 2025 to 103.19 million transactions in September from 50.93 million transactions in January.

The value of digital gold purchases via UPI soared about 85% to ₹1,410 crore in September from ₹762 crore in January 2025.

What are the pros and cons of investing in digital gold?

The biggest advantage is that it allows a convenient and seamless way to buy the asset without the hassles of owning and storing physical gold. Investors can start buying for as little as ₹1 to ₹10, depending on the platform. This kind of 24/7 access and fractional ownership in the world’s safest store of value is hardly possible any other way. The option of on-tap redemption or conversion into physical units only adds to its glitter.

That said, the biggest issue is that this asset class sits in a regulatory grey area with neither Sebi nor the Reserve Bank of India governing it. If a distributor or platform faces a bank-run type situation or in the worst case scenario goes bust, there may be very little recourse available for buyers.

Reputed players such as MMTC-PAMP back their digital gold holdings with physical gold, which is verified by regular third-party audits, but the same cannot be said with certainty for many smaller players, which raises counterparty risks. Also, pricing differs from platform to platform depending on the markups, charges, payment gateway fees, and other charges levied by them. This, typically, adds up to 2-3%, apart from the 3% GST charged for gold purchases.

What should investors do?

As highlighted by Sebi, those wishing to take an exposure to gold have a lot of regulated avenues like derivative contracts and gold ETFs, which are surging in prominence in India. According to data from the World Gold Council, Indian gold ETFs saw net inflows of $850 million in October 2025—the third highest globally after the US and China. This was also the fifth straight month of positive flows for Indian gold ETFs.

So far this year, inflows into Indian gold ETFs have reached around $3 billion—a lifetime high, with assets under management standing at $11.3 billion.

Experts say those who still wish to buy gold digitally should stick to large, reputed players. Buying gold physically is always an option, though it remains the most inefficient due to storage and safety issues.