Meanwhile, the Nifty50 and the Sensex have barely moved in the last year. Whatever the explanation, the fact remains: both indices doubled in the post-COVID period, while gold lovers watched their favourite metal climb even faster.
The rise of DigiGold
With gold becoming increasingly expensive, one-time purchases or lump sum investment have become difficult for many households. But Indian entrepreneurs have never been short of ideas. After all, aren’t we a land of shampoo sachets? If you cannot afford something in bulk, break it down and make it accessible in tiny portions for larger masses. That is to ensure that the TAM (Total Addressable Market) is made the SAM (Serviceable Available Market). That same logic shaped the rise of digi gold.
Customers can buy gold in very small amounts, sometimes as low as Rs 100, with some platforms even claiming the minimum can be Re 1. Consumers can also buy by weight instead of value. In return, the platform credits the user with the equivalent weight of gold for the amount paid on that date at the prevailing price. The gold is supposedly stored safely in a vault, either by the platform or by third-party custodians like banks. Many platforms also offer an app-based wallet where users can track their holdings and later convert them into physical gold like coins, bars or even jewellery. With silver prices rising sharply, similar digital silver products have sprung up too.
The Regulatory Grey Zone
However, the real problem with digi gold lies elsewhere in the regulatory vacuum. It is not officially classified as a financial product, like a deposit or recurring deposit. Therefore, it does not fall under the regulatory purview of the Reserve Bank of India (RBI) or under chit funds regulations. This raises the crucial question, to whom will the investor go in case of any default? The digi gold platforms claim that it’s insured. But who supervises them or monitors them? Who conducts periodic audits of the holdings against the money received by them? The uncomfortable answer is no one, at least not formally. This is where the recent caution issued by the Securities and Exchange Board of India (SEBI) becomes relevant. SEBI clarified that digi gold is unregulated, and warned that some platforms have been using SEBI’s name, misleading investors to believe that it’s regulated or about to be regulated.
Why SEBI Cannot Regulate It (Yet)
One might reasonably ask: if gold ETFs, gold mutual funds, and gold trading on MCX are regulated, why not digi gold? The answer lies in classification. Digi gold is neither a security nor a commodity derivative. SEBI’s jurisdiction is defined by law, and without a clear category to place digi gold in, the regulator has limited power. In contrast, gold ETFs follow strict rules. Custodians conduct periodic audits, physical verification is mandatory, and both internal and statutory auditors review the holdings. Reports go to trustees every six months. Everything is documented, cross-checked and publicly reported giving investors confidence.
Digi gold has none of these protections. That means exposure to counterparty risk (in case the platform defaults), pricing opacity, hidden charges, unclear tax treatment and potential quality issues. Storage and theft risks, though often glossed over, also exist. Most importantly, Digi gold investors currently lack a defined grievance redressal mechanism. The recent collapse of a century-old jeweller in Chennai where customers waiting for chit payouts were left in shock remains a painful reminder that even reputed names can fail.
Right time to regulate…
Despite the concerns, SEBI has not said, ‘Don’t invest in this product, or it’s totally unsafe.’ The regulator has simply clarified that it does not regulate these products, and in case of any failures, they are not responsible. It is up to consumers to evaluate and take a call.
At the same time, SEBI’s caution note may prompt a broader tightening of gold-related regulations. Looking at global best practices, one example stands out: SPDR Gold Shares, an internationally reputed pioneer in gold ETFs, publishes a detailed daily list of every gold bar it holds, complete with bar numbers and weights. Its gold is held by custodians such as JPMorgan Chase Bank and HSBC Bank plc, and verified by independent inspectors. This level of transparency provides tremendous comfort to investors.
With gold and silver prices at record highs, SEBI’s timing is significant. Investors are flocking to gold in search of safety, and digi gold platforms are booming. This is precisely the moment when regulatory clarity becomes most important.