India's market regulator, the Securities and Exchange Board of India (SEBI), has issued a public caution against investing in digital gold and e-gold products. SEBI warned that these popular online investment options remain unregulated, exposing investors to significant risks. The regulator instead urges investors to choose safer, regulated alternatives like Gold Exchange-Traded Funds (ETFs) and Electronic Gold Receipts (EGRs).^{[1][2][3][4][5][6]} ### Digital Gold Risks Worry Regulators Digital gold allows investors to buy and store gold electronically without physical possession.^[1][2][7][8] Many online platforms and fintech apps promote digital gold as a convenient alternative to physical gold, especially with gold prices rising.^{[1][2][3][7][4][6]} However, SEBI clarifies that these products do not fall under its regulatory framework.^{[1][2][3][7][4][9][5][6][10]} They are not classified as securities or regulated as commodity derivatives.^{[1][2][3][7][4][5][6][10]} This lack of regulation means investors do not have the same protection mechanisms available under securities market laws.^{[1][2][3][7][4][6][10]} Investors face substantial counterparty and operational risks.^{[1][2][3][7][4][5][6][10]} For instance, the platform itself could fail or default on its promises to deliver gold.^[3][4][6] There is also no independent verification that the gold actually exists or is stored securely.^{[3][4][11][6]} Zerodha founder and CEO Nithin Kamath highlighted that digital gold is an inefficient investment. He explained that buyers immediately lose around 6% of their investment. This 6% loss includes a 3% Goods and Services Tax (GST) at the time of purchase and another 2-3% due to price spreads.^[12][13][14] This happens even before accounting for the added regulatory risks.^[12] "Digital gold is unregulated. A timely reminder from SEBI," Kamath stated.^[12] Abhishek Kumar, a SEBI-registered investment advisor, told IndiaToday.in that if a digital gold platform collapses, investors would not have protection under SEBI.^[4] He emphasized the difficulty in assessing the credibility of these unregulated platforms.^[4] Kumar also pointed out the risk of platforms failing to deliver gold or defaulting on redemption.^[4] Following SEBI's warning, fintech platforms offering digital gold have reportedly seen a threefold surge in user withdrawals.^[11] ### Gold ETFs Offer Robust Investor Protection SEBI recommends regulated gold products as safer alternatives for investors. These include Gold ETFs, exchange-traded commodity derivatives, and Electronic Gold Receipts (EGRs).^{[3][4][9][5][6][10][14]} Gold ETFs, in particular, are mutual fund schemes that invest in physical gold.^[4][15] Each unit of a Gold ETF typically represents a specific quantity of physical gold, often 1 gram.^[16][8][15] This physical gold, which is 99.5% pure, is held by an authorized custodian.^[17][4][8] Gold ETFs operate under strict SEBI regulations.^{[3][4][5][6][15][18][14]} Fund houses must make regular disclosures about their gold holdings.^[17][8] Statutory auditors also conduct mandatory regular audits of the physical gold backing these ETFs.^[15][14] This ensures transparency and verifies the existence of the gold.^{[17][19][20][8][15]} Unlike digital gold, Gold ETFs offer high liquidity and transparent pricing.^{[17][16][19][21][20][5][8][15]} They trade on stock exchanges like the BSE and NSE, allowing investors to buy or sell units during market hours through their demat accounts.^{[17][19][20][4][8][15]} This makes them easily accessible and provides real-time pricing.^{[19][21][20][8][15]} Investing in Gold ETFs also eliminates several costs associated with physical gold, such as making charges, storage fees, and insurance.^{[17][16][19][20]} Crucially, Gold ETFs do not incur the 3% GST at purchase, making them more cost-efficient from the outset compared to digital gold.^[14] The units are held in a dematerialized form, removing concerns about theft or secure storage at home.^{[16][19][20][18]} ### Making an Informed Choice Experts strongly advise investors to prioritize regulated products for gold exposure. Abhishek Kumar recommends that investors redeem their digital gold investments and shift to SEBI-regulated products like Gold ETFs or Electronic Gold Receipts.^[4][10] He stressed that regulated products offer investor protection, transparency, and legal recourse that unregulated digital gold platforms cannot provide.^[4][10] Kinjal Shah, a chartered accountant, echoed this sentiment, stating that digital gold operates without supervision. There is no assurance that the gold truly exists or will be delivered.^[14] Gold ETFs, on the other hand, provide a secure way to diversify a portfolio and act as a hedge against inflation and currency fluctuations.^{[17][16][19][21][20]} SEBI's warning serves as a critical reminder that convenience should not overshadow investor safety. While digital gold offers an easy entry point, the absence of regulatory oversight presents substantial risks. Investors seeking to gain exposure to gold should opt for SEBI-regulated instruments like Gold ETFs, which provide a robust framework of transparency, security, and investor protection.