Sebi warning: Why investing in digital gold is risky? Should you hold or exit digital gold investments?

The Securities and Exchange Board of India (SEBI) has warned investors against putting money into digital gold products offered by fintech apps and online platforms, citing the absence of regulatory oversight. In its recent advisory, the market watchdog clarified that these instruments are not classified as securities or regulated as commodity derivatives, placing them outside SEBI’s jurisdiction.

Digital gold is often marketed as a convenient and secure way to buy gold online, but SEBI cautioned that such products carry counterparty and operational risks. Since these offerings do not fall under any regulatory framework, there is no guarantee regarding the storage, redemption, or physical backing of the gold claimed to be held on investors’ behalf.

“Investor protection mechanisms applicable to securities or mutual funds do not extend to digital gold,” SEBI stated. The regulator urged investors to prefer regulated investment avenues like Gold Exchange-Traded Funds (ETFs), Gold Mutual Funds, Exchange-Traded Commodity Derivatives, and Electronic Gold Receipts (EGRs)—all of which offer transparency and oversight through SEBI-registered intermediaries.

Understanding the risks

The biggest issue with digital gold is its lack of regulation. Without SEBI supervision, there’s no assurance about the authenticity, safety, or insurance of the physical gold supposedly stored in vaults. If a platform fails or shuts down, investors have no legal recourse or protection.

Large holdings amplify this risk, as the absence of transparent audits or redemption guarantees could lead to significant losses. Experts say that while small, short-term purchases may be acceptable for convenience or gifting, digital gold should not be treated as a long-term or core investment.

“This clarification from SEBI is essential,” said Saurabh Jain, Co-Founder & CEO of Stable Money. “Simplicity without regulation can be risky. Platforms offering digital gold must be held to the same standards of transparency and accountability as banks or mutual funds.”

Finance coach A K Mandhan added, “For every gram of digital gold bought, it’s not clear whether the platform really holds that much real gold. If any default arises, SEBI cannot intervene.” He advised investors to switch to SEBI-approved instruments like Gold ETFs, Gold Mutual Funds, Gold Commodity Derivatives, or EGRs. He also noted that Sovereign Gold Bonds (SGBs), though not under SEBI, are regulated by the RBI and considered safe.

Should you hold or exit?

Existing investors should review their exposure. If the investment is small and the platform provides clear audits and storage details, one may continue but stay cautious. However, those with large or unverified holdings should consider redeeming and shifting to regulated products.

For long-term gold exposure, Gold ETFs and EGRs offer better liquidity, transparency, and investor protection, all within a robust regulatory structure.

What investors should note

Before investing, check if the platform:

Is regulated or SEBI-registered.

Holds gold 1:1 against investor holdings, stored with independent custodians.

Offers clear redemption policies and pricing transparency.

Ultimately, SEBI’s advisory underscores a simple truth — trust and regulation must go hand in hand. While digital gold promises convenience, only regulated gold products provide the security, transparency, and accountability serious investors need.