SEBI warns on digital gold: Should you cash out or hold? Experts explain

'Safety must come before convenience,' say experts, urging investors to rethink unregulated digital gold after SEBI's latest caution

The Securities and Exchange Board of India (Sebi) has cautioned investors against buying digital gold through fintech apps and online platforms, warning that such products are not covered under any Sebi framework. The regulator said these offerings “may entail significant counterparty and operational risks” and that none of the investor protection mechanisms under securities law would apply. 

It instead encouraged investors to consider Sebi-regulated gold avenues such as exchange-traded funds (ETFs), exchange-traded commodity derivatives and electronic gold receipts (EGRs).

 

What investors should do now

Investors do not need to panic or rush to redeem, but should review where and how their digital gold is held, said Aditya Agarwal, co-founder at Wealthy.in, a wealth tech platform.

 

He explained that Sebi’s advisory does not mean all digital gold platforms are unsafe. It merely differentiates between regulated and unregulated products.

 

“When a product lies outside Sebi’s framework, its standard safeguards and investor protection mechanisms don’t apply,” he said.

 

Agarwal advised checking whether a platform publishes independent third-party audit reports or vault certificates confirming the physical gold backing, and whether vault partners are reputed custodians such as Brink’s or Sequel Logistics.

 

“If the platform lacks transparency or independent verification, consider redeeming or shifting to a more credible provider. Otherwise, you may continue holding but remain alert to regulatory updates,” he added.

 

Understanding the risks

Convenience should never override regulatory safety in wealth creation, said Ranjit Jha, managing director and chief executive officer at Rurash Financials. He explained that Sebi’s warning serves as a reminder for investors to be aware of the significant risks of dealing with unregulated platforms.

 

“In simple terms, counterparty risk is the danger that a digital gold app or its vaulting partner could default or collapse, leaving investors unable to redeem their holdings,” Jha said.

 

“Operational risk refers to system failures or fraud that could erase or manipulate ownership records. Since these products are unregulated, investors have no grievance redressal mechanism if things go wrong,” he added.

 

Why Sebi-regulated gold products are safer

Gold ETFs and EGRs are regulated under Sebi, backed by physical gold held in independent vaults with mandatory audits and clear redemption protocols, said Kinjal Shah, chartered accountant & vice president at the Bombay Chartered Accountants’ Society.

 

“Digital gold, by contrast, operates outside any supervision, with no assurance that the gold actually exists or will be delivered,” she said.

 

Shah added that while digital gold attracts a 3 per cent GST at purchase, Gold ETFs and EGRs avoid that cost, making them more efficient. These products also offer liquidity through stock exchanges, unlike digital gold, which can only be sold back to the issuing platform.

 

How much exposure is safe?

Gold should ideally make up 10-15 per cent of an investor’s overall portfolio, with the majority routed through Sebi-regulated products, Shah said. Experts agree that while digital gold offers convenience for small-ticket investments, it remains a high-risk, unregulated product.

 

“The marginal convenience of an app doesn’t justify the absence of regulatory protection,” she added, recommending that investors gradually move to regulated options such as gold ETFs or EGRs for better safety, transparency and liquidity.