3 min read.Updated: 26 Aug 2021, 06:30 AM ISTRenu Yadav
There are no regulations around digital gold. It is not regulated by Sebi as it doesn’t come under the purview of Securities Contracts (Regulation) Rules, 1957
If you are planning to buy or have already been investing in digital gold through your broker, you may not be able to do so going forward as the exchanges have asked stock brokers to stop selling digital gold, an instrument which allows one to invest in physical gold digitally.
Industry experts told us that the directive has come to the exchanges from the stock market regulator, the Securities and Exchange Board of India (Sebi). Therefore, exchanges have sent a circular to brokers to comply with the guidelines.
There are no regulations around digital gold. It is not regulated by Sebi as it doesn’t come under the purview of Securities Contracts (Regulation) Rules, 1957. Therefore, Sebi doesn’t want entities regulated by it to sell the product.
Digital gold has gained popularity in recent years as investors can buy gold, even worth one rupee, in this form. The product is sold through distributors, including stock brokers, investment platforms and mobile wallets.
There are currently three companies offering digital gold in India: Augmont Gold; MMTC-PAMP India Pvt. Ltd, a joint venture between state-run MMTC Ltd and Swiss firm MKS PAMP; and Digital Gold India Pvt. Ltd with its SafeGold brand. These companies sell the product through stock brokers, investment platforms and mobile wallets.
Now, stock brokers will stop selling digital gold, while wallets and platforms will continue to sell it.
So, what will happen to the existing customers who have invested in digital gold through these stock brokers? If you are a digital gold investor, there is no need to panic as you can exit your investments through your broker.
If you want to hold your investments, you will have to directly get in touch with the manufacturer of the product, that is MMTC-PAMP, Augmont or Digital Gold India Pvt. Ltd after the deadline.
“We stopped selling the product after 10 August when we received the communication from the exchange to refrain from selling the product. Stock brokers have been given one month by the exchanges to close the product. Investors can continue to hold or exit by selling the gold or taking physical gold delivery even post this from MMTC-PAMP directly. We have communicated the same to investors who have invested in digital gold through us," said Kishore Narne, associate director and head, commodities and currencies, MOFSL, one of the distributors of digital gold offered by MMTC-PAMP.
“Post 10 September, investors will have to deal directly with MMTC-PAMP. Investor’s details are anyways registered with MMTC-PAMP. We are providing the customers with toll-free numbers to contact MMTC-PAMP," he added.
In the case of digital gold investing, when an investor buys digital gold, the manufacturer of the product buys physical gold on the behalf of the investors and keeps it in vaults operated by a third party. The gold is insured for any loss. The manufacturer charges around 3% as spread (difference between buy and sell rate of the gold) to the investor apart from 3% goods and services tax.
“Customers should not worry about anything if they have bought digital gold from our partnered authenticated intermediary and their digital gold is safe in our vaults. They need not liquidate their position. Our partner intermediaries are already abiding by the framework and guidelines prescribed by the exchange and regulator," said Renisha Chainani, head of research, Augmont. However, if you are planning to invest in gold, you may explore other digital ways of investing in gold which are better regulated such as gold exchange-traded funds (ETFs) and gold funds.
If you want to invest for the long term, sovereign gold bonds can be a good option as they not only provide the benefit of capital appreciation but pay interest to the investor.
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