All You Need to Know About Digital Gold and the risks involved
Digital gold has become extremely popular among retail investors due to its ease of purchase, small-ticket affordability and app-based convenience. However, SEBI’s recent cautionary note has raised concerns about the lack of regulation and hidden risks that many buyers remain unaware of. Here is a simplified and comprehensive breakdown of how digital gold works, its risks, and safer alternatives.
About digital gold and who offers it
Digital gold is essentially electronic gold or e-gold purchased through fintech apps and various online platforms. Although the payments, onboarding and verification processes are digital, the underlying asset is real physical gold stored in secure vaults by authorised refiners and logistics partners.
Leading refiners such as MMTC-PAMP, SafeGold and Augmont provide the physical gold, while platforms like Google Pay, PhonePe, Amazon Pay, Paytm and jeweller platforms facilitate customer transactions.
How digital gold works in simple terms
• You buy any quantity of gold starting from as low as ₹100.
• The platform buys the equivalent weight of physical gold and stores it in certified vaults.
• You can sell anytime or request physical delivery (subject to charges and minimum limits).
• Storage insurance, transportation and vaulting are handled by refiners like Brink’s.
• Prices are based on bullion market wholesale rates, not necessarily retail shop prices.
Key concerns raised by SEBI
• No regulatory oversight by SEBI, RBI or IRDAI.
• No statutory grievance redressal if the platform defaults.
• Pricing is not fully transparent; platforms may charge spreads above spot price.
• No clear guidelines on long-term storage when holding beyond a few years.
• Delivery of physical gold attracts making charges, GST and courier charges.
Hidden costs investors often ignore
Digital gold advertisements highlight convenience but rarely mention charges such as vaulting costs after initial free periods, making charges on coins/bars, 3% GST on physical conversion, and spreads charged during buying and selling. If held beyond five years, many providers levy storage costs or force physical delivery — both expensive outcomes.
For those tracking market-linked asset choices beyond gold, here is where you can quickly check updated index-level trading ranges:
Major risks in buying digital gold today
• Counterparty risk: Since not regulated, the platform itself may face financial issues.
• No regulator to approach for fraud or disputes.
• Pricing gaps due to spreads, premiums and platform charges.
• Forced conversion to physical gold after the maximum storage period.
• Lack of clarity on what happens in case the provider shuts down.
Safer alternatives for investors
• Gold ETFs: SEBI-regulated, low-cost, liquid and easily tradable on exchanges. Allow small investments.
• Sovereign Gold Bonds (SGBs): Issued by the RBI, offer 2.5% interest annually plus gold price appreciation. No storage cost. Best long-term alternative.
• Gold mutual funds: Invest in ETF units; good for those without demat accounts.
• Physical jewellery/coins: Traditional method but incurs making charges and wastage.
Investor takeaway
Digital gold provides convenience but comes with serious regulatory and counterparty risks. SEBI has highlighted these concerns because millions of investors assume digital gold is officially regulated, which is not the case. For long-term wealth creation, SGBs and Gold ETFs offer far safer and more transparent alternatives while eliminating hidden costs.
For more such unbiased guidance and actionable financial insights, visit Indian-Share-Tips.com, which is a SEBI Registered Advisory Services.
SEBI Disclaimer: The information provided in this post is for informational purposes only and should not be construed as investment advice. Readers must perform their own due diligence and consult a registered investment advisor before making any investment decisions. The views expressed are general in nature and may not suit individual investment objectives or financial situations.
