SEBI Issues Critical Warning Against Unregulated Digital Gold Investments: What Investors Need to Know
Mumbai, November 9, 2025 — The Securities and Exchange Board of India (SEBI) has issued a strong cautionary advisory to investors regarding digital gold and e-gold products, warning that these increasingly popular investment options operate entirely outside the regulatory framework and expose investors to significant risks. This SEBI warning comes at a critical time when digital gold investments have witnessed exponential growth across India's fintech ecosystem.
Understanding the SEBI Digital Gold Advisory
The market regulator has clarified that digital gold products are neither notified as securities nor regulated as commodity derivatives, operating entirely outside SEBI's purview. This lack of regulatory oversight has prompted SEBI to caution investors about potential counterparty and operational risks associated with these unregulated investment products.
SEBI has observed that various online and digital platforms are offering "Digital Gold" or "E-Gold" products to investors, marketing them as convenient alternatives to physical gold investments. Despite their growing popularity on payment platforms like Paytm, Google Pay, and PhonePe, these products do not enjoy the same investor protection mechanisms available in SEBI-regulated markets.
The Surge in Digital Gold Investment Popularity
Digital gold investments have experienced remarkable growth in recent months. According to data from the National Payments Corporation of India (NPCI), digital gold purchases through UPI surged 95.90 percent in 2025, jumping from 50.93 million transactions in January to 99.77 million in August. The total value also increased by 55.4 percent to Rs 1,184 crore in August from Rs 761.6 crore in January.
This explosive growth has been fueled by several factors, including the convenience of buying fractional gold quantities, low entry barriers starting at just Rs 10 or Rs 100, and gold prices climbing more than 55 percent in the last year, driven by global trade policy uncertainty, geopolitical tensions, and continued central bank buying.
Key Risks Associated with Digital Gold Products
Regulatory Gap and Investor Protection
SEBI has emphasized that such digital gold products may entail significant risks for investors and may expose them to counterparty and operational risks. None of the investor protection mechanisms available under the securities market framework will apply to such investments.
This means that in cases of fraud, platform insolvency, or disputes, investors may have little to no recourse through the securities market regulatory system. The absence of SEBI oversight creates a vacuum where traditional investor safeguards simply don't exist.
Cybersecurity Vulnerabilities
The digital gold sector has already experienced significant security breaches. In June 2025, hackers exploited a security flaw in Aditya Birla Capital Digital mobile app and stole digital gold worth approximately Rs 1.95 crore from more than 400 customer accounts. This incident highlights the cyber risks inherent in storing and managing digital gold investments.
Counterparty and Operational Risks
Unlike regulated gold investment products, digital gold platforms operate with minimal oversight. Investors face risks related to:
- Platform solvency and business continuity
- Transparency in gold storage and custodianship
- Pricing mechanisms and valuation methods
- Exit options and liquidity during market stress
- Physical delivery guarantees
SEBI-Regulated Gold Investment Alternatives
SEBI has recommended that investors seeking gold exposure should utilize regulated channels that provide transparency, liquidity, and comprehensive investor protection frameworks. These SEBI-regulated gold products include:
Gold Exchange-Traded Funds (Gold ETFs)
Gold ETFs are SEBI-regulated investment instruments available through registered intermediaries, offering transparency, regulatory safeguards, and protection against fraud or misuse. These funds track gold prices and trade on stock exchanges, providing high liquidity and regulatory oversight.
Electronic Gold Receipts (EGRs)
Electronic Gold Receipts can be traded on stock exchanges and fall under SEBI's regulatory framework. EGRs represent ownership of physical gold stored in secure vaults and are backed by actual gold holdings.
Exchange-Traded Commodity Derivatives
Exchange-traded commodity derivatives for gold investments are facilitated by SEBI-registered intermediaries and governed by the regulator's comprehensive framework. These instruments allow investors to participate in gold price movements with proper regulatory oversight.
How Digital Gold Platforms Operate
In India, three key entities dominate the digital gold space — MMTC-PAMP, SafeGold (Digital Gold India Pvt. Ltd.), and Augmont Gold — each partnering with fintech platforms, banks, and jewellery brands to distribute their products. The basic concept involves investors purchasing gold digitally while an equivalent quantity of physical gold is stored in vaults by the platform provider.
Investors can later sell the gold back online or request physical delivery as coins or bars. While this model offers convenience and accessibility, these products remain unregulated and investors purchasing them will not be covered by any investor protection mechanisms available in SEBI-regulated markets.
Expert Recommendations for Gold Investors
Financial experts emphasize the importance of due diligence when investing in gold. The key considerations include:
- Choose Regulated Channels: Always invest through SEBI-registered intermediaries offering regulated gold investment products
- Understand Risk Exposure: Recognize that unregulated digital gold carries counterparty, operational, and cybersecurity risks
- Verify Platform Credentials: Check whether your investment platform falls under SEBI's regulatory purview
- Diversify Gold Holdings: Consider mixing physical gold, gold ETFs, and sovereign gold bonds for balanced exposure
- Stay Informed: Keep track of regulatory advisories and market developments
The Way Forward for Digital Gold Investors
Existing digital gold investors should carefully evaluate their current holdings and consider transitioning to SEBI-regulated alternatives. While the convenience and low entry barriers of digital gold are attractive, these benefits must be weighed against the absence of regulatory protection and the documented security vulnerabilities.
SEBI's latest warning reinforces the principle that trust should not replace regulation in investment decisions. For investors genuinely seeking gold exposure as part of their portfolio strategy, SEBI-regulated options provide the security, transparency, and legal recourse that unregulated platforms cannot guarantee.
Conclusion: Prioritizing Safety Over Convenience
The SEBI warning against digital gold investments serves as a critical reminder that not all that glitters is gold — especially in the digital investment landscape. While the fintech revolution has democratized access to various asset classes, it has also created regulatory gaps that can expose unsuspecting investors to significant risks.
The Indian securities regulator's clear stance emphasizes that investors should prioritize safety and regulatory compliance over convenience when building their gold investment portfolios. With gold prices at record highs and market volatility increasing, now more than ever, investors need the protection that comes with SEBI-regulated investment products.
For those looking to invest in gold, the message is clear: stick to regulated channels, work with registered intermediaries, and ensure your investments are covered by proper investor protection mechanisms. In the world of investments, regulatory oversight isn't just bureaucratic red tape — it's your financial safety net.
Key Takeaways:
- Digital gold products operate outside SEBI's regulatory framework
- No investor protection mechanisms apply to unregulated digital gold
- Cyber risks include potential platform hacks and security breaches
- SEBI recommends Gold ETFs, EGRs, and exchange-traded derivatives instead
- Digital gold purchases through UPI surged 95.90% in 2025
- Investors face counterparty and operational risks with digital gold platforms
Disclaimer: This article is for informational purposes only and should not be considered investment advice. Investors should conduct their own research and consult with qualified financial advisors before making investment decisions.
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