Major Risk in Digital Gold Investment! SEBI’s Warning Creates New Panic, Know the Safe Alternatives Before Losing Money

Digital Gold Risk: Buying gold with a single click through various apps has become very common these days. This facility of buying gold for as little as ₹10 on apps like Paytm, PhonePe, or from various jewellery brands is called ‘Digital Gold’. It has quickly gained popularity due to its ease of investment. However, a significant risk is hidden within this popular investment method. Recently, India’s market regulator, SEBI (Securities and Exchange Board of India), has warned the public about the dangers of investing in digital gold.

What is Digital Gold and How Does It Work?

Digital Gold is a method of buying gold online. When you purchase digital gold from a platform, the company claims to buy an equivalent amount of 24-karat physical gold on your behalf and store it in their secure vaults. You are given a digital receipt or certificate as proof. Its main attractions are:

• Gold can be purchased in very small quantities, such as for ₹10 or ₹50.
• There are no worries about storing the gold or its security.
• It can be sold online anytime or redeemed for physical jewellery or gold coins.

The involvement of big brands like Tanishq, MMTC-PAMP, Paytm, and PhonePe has built trust among people.

SEBI’s Warning: Where is the Real Risk?

SEBI’s primary concern is that digital gold is not a regulated investment product. SEBI has clearly stated that digital gold is not considered a ‘security’ and therefore falls outside its jurisdiction. This creates several major risks for investors:

• No Investor Protection: Unlike mutual funds or Gold ETFs, which have the protection of SEBI, digital gold does not. If the private company goes bankrupt for any reason, your entire investment could be lost.
• Counterparty Risk: Your investment is entirely dependent on the credibility of the private company. If they shut down, there is no guarantee you will get your gold back.
• Lack of Transparency: There is no reliable audit report available to the general investor to prove that the companies are actually storing gold in vaults on your behalf. The entire system runs on trust.
• Misleading Perception: Due to the association with big brand names, people often perceive it as a safe and government-approved investment, which is not true.
• Additional Charges: When you redeem your digital gold for physical gold, companies can impose making charges or other fees as they wish, as there is no government regulation on this.

Is Digital Gold Illegal?

No, SEBI has not declared it illegal. It is a ‘commercial product’, but not a ‘regulated investment product’. This means you are not breaking any law by buying it, but you bear the entire risk yourself.

What Should Investors Do Now?

SEBI has also suggested safer alternatives alongside highlighting the risks.

For those who have already invested: Do not panic. Download and securely store all your digital receipts and statements. If possible, consider redeeming your digital gold (by selling it or taking physical delivery) and reinvesting in a regulated instrument when you get the chance.

For those planning to invest: Consider SEBI-approved safer alternatives instead of digital gold.

What are the Safe Alternatives?

SEBI considers the following channels to be safe for investing in gold:

• Gold ETFs (Exchange Traded Funds): These can be bought and sold on the stock exchange like shares and are regulated by SEBI.
• Sovereign Gold Bonds (SGBs): These are issued directly by the Government of India and are the safest option. They also offer an additional annual interest of 2.5%.
• Electronic Gold Receipts (EGRs): These are also traded on the stock exchange and are under SEBI’s purview.

While investing in digital gold is very convenient, the risks far outweigh the benefits. SEBI’s warning proves that it is crucial to verify how safe and officially regulated an investment is before putting your hard-earned money into it.

Disclaimer: This article is for informational purposes only. It is not investment advice. Please consult with a financial advisor before making any investment decisions.