Vinu: Manu, I read in BusinessLine that SEBI has warned investors about digital gold. Why is SEBI suddenly concerned?

Manu: Good question, Vinu. SEBI noticed a rapid rise in people buying digital gold through online platforms like Google Pay, PhonePe, Amazon Pay, Paytm, and even jeweller websites. But the problem is—digital gold is not regulated by SEBI, RBI, or IRDAI. That means no official body oversees the buying, selling, storing, or pricing.
Since investors’ money is involved, SEBI issued a caution to make people aware of the risks.

Vinu: But what exactly is digital gold? Is it real gold?

Manu: Yes, the underlying asset is real physical gold.
Digital or e-gold is just an electronic way of buying small quantities of 24-carat gold through online platforms.
The platform partners with entities like MMTC-PAMP, Augmont, Digital Gold India, Safegold, etc. These companies actually buy, store, insure, and manage the physical gold on behalf of the investor.

Vinu: How does the buying and selling process work?

Manu: It’s simple:

1. You complete KYC online—PAN, address, ID proof, bank details.
2. You log in to the app and buy gold starting from ₹100.
3. The platform partner buys equivalent physical gold (up to four decimal places in grams).
4. The gold is stored in a secure vault with insurance.
5. You can sell anytime.
6. You can even request physical delivery—gold coins or bars—but charges apply.

There is no lock-in, except some apps restrict selling gold bought on the same day.

Vinu: So if everything is online, what risks are investors facing?

Manu: There are several:

1. No regulation → No one controls price, charges, or investor protection.
2. Price not transparent → Digital prices often differ from market spot rates.
3. Buy-sell spread is high → You may pay more and receive less.
4. GST 3% is added during purchase.
5. Vault & insurance charges → After a few years, many platforms start charging 0.3–0.4% of gold value annually.
6. Delivery charges, transportation costs, minting charges → Generally 3–11% of gold value.
7. No grievance redressal authority → If something goes wrong, no regulator is accountable.

Because of these hidden costs, SEBI wants investors to be cautious.

Vinu: Is digital gold a good long-term investment?

Manu:  Not necessarily. It’s convenient, but costly and unregulated. For long-term gold investing, safer alternatives exist.

Vinu: What are those safer alternatives?

Manu: Three major ones: 

1. Gold ETFs (Exchange Traded Funds)

• Sold via mutual funds.
• Regulated by SEBI.
• High liquidity.
• Requires demat and trading account.
• Very small ticket size (1 unit = 1/100th gram).

2. Fund of funds investing in gold ETFs

• For those without a demat account.

3. Sovereign Gold Bonds (SGBs)

• Issued by RBI.
• Give gold price equivalent on maturity.
• Plus 2.5% annual interest.
• Safest gold investment.

(Note: RBI discontinued fresh SGB tranches from early 2025, last issued Feb 2024, but existing SGBs are available in the secondary market.)

Vinu: Manu, before we wrap up, can you explain a few technical terms used?

Manu:  Sure, here are the key ones:

• Digital Gold: Electronic purchase of fractional gold units backed by physical gold stored in vaults.
• Spot Price: The current market price for immediate gold delivery.
• Buy-Sell Spread: Difference between buying price and selling price—platforms earn money from this.
• Vault Charges: Fees for storing and insuring gold in secure vaults.
• Minting Charges: Cost of converting raw gold into coins or bars if you request physical delivery.
• Gold ETF: A regulated financial product that tracks gold prices and is traded on stock exchanges.
• Sovereign Gold Bond (SGB): Government-backed bonds linked to gold prices with additional interest.

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