Digital gold companies in India, under the aegis of the India Bullion & Jewellers Association, have formally approached SEBI to bring this business into the regulatory purview. The call comes amidst growing concern over the safety and transparency of these fintech-driven gold-investing products.
SEBI recently issued a stern advisory to caution retail investors about the risks associated with ‘digital gold’ or ‘e‑gold’ products. Many of these products, according to the regulator, operate wholly outside SEBI’s remit, as they are neither classified as securities nor regulated as commodity derivatives.
This advisory highlighted the fact that standard investor-protection frameworks, available in SEBI-regulated markets, do not apply to digital gold investments. One key concern, according to SEBI, is the risk of counterparty and operational failure.
Without a formal regulator in place for such platforms, investors may be exposed to cases where the gold, which theoretically underlies their virtual claims, is not audited, or where vault partners fail to provide them with physical gold upon redemption.
This lack of oversight has prompted a surge in withdrawals from major digital gold fintechs, according to several industry sources.
SEBI has cautioned that certain registered investment advisers are facilitating or distributing these unregulated products, which may violate the existing advisory regulations.
The CEO of Zerodha, Nithin Kamath, among other influential figures in finance, has given support to the cautions of SEBI and advised that investors who want to have gold exposure should only think about regular instruments like Gold ETFs or EGRs.
From the industry side, IBJA's appeal to SEBI suggests an inclination toward formal regulation, not a push to evade scrutiny. By bringing digital-gold platforms under SEBI's wing, these firms hope to boost consumer trust and ward off fraud allegations.
With digital gold gaining popularity, especially among small, first-time investors, the debate now shifts to whether regulation will catch up with innovation.