How Safe Is Digital Gold? The Rules Investors May Soon Need

Almost a year after the Securities and Exchange Board of India (Sebi) warned investors that digital gold falls outside its regulatory framework, the industry is once again discussing the need to bring the product under formal regulation.

The government is now considering tighter rules for digital gold, including a requirement that every digital unit be backed by physical bullion. The Ministry of Finance has sought views from regulators, banks and other stakeholders, with discussions also considering joint oversight by Sebi and the Reserve Bank of India (RBI), according to recent reports. One proposal under discussion is to recognise digital gold as a security under the Securities Contracts (Regulation) Act, 1956.

The digital gold industry has also backed greater regulatory oversight. Samit Guha, managing director and CEO of MMTC-PAMP, recently said the ecosystem needs regulatory oversight given its growing consumer acceptance. Industry participants have also supported physical backing, independent audits and clearer ownership as areas where formal rules could strengthen investor confidence.

What Did Sebi Say About Digital Gold

Sebi's warning came on November 8, 2025. The regulator said digital gold products offered through online platforms were different from Sebi-regulated gold products because they were neither notified as securities nor regulated as commodity derivatives.

The regulator made it clear that such products "operate entirely outside the purview of Sebi" and warned that they could expose investors to counterparty and operational risks. It also said that none of the investor protection mechanisms available under the securities market framework would apply to investments in digital gold.

Sebi's warning effectively meant that investors buying digital gold through apps and platforms were relying on the contractual arrangements of the companies offering the product, rather than a securities-market regulatory framework.

Days later, Sebi Chairman Tuhin Kanta Pandey clarified that the regulator was not working on a new regulatory framework for digital gold at that stage.

Why Does Digital Gold Need Regulation

The central question is not just how easily investors can buy gold, but what exactly they own and what happens to that ownership if the platform or intermediary runs into trouble.

"The priority should be to clearly establish what the investor actually owns," said Mahendra Luniya, chairman of Vighnaharta Gold.

"The biggest gap today is not technology, but the lack of clear rules around ownership, safe custody and counterparty protection."

Luniya said regulation should establish four basic safeguards. These include 100 per cent physical gold backing, independent and secure custody, regular third-party audits and clear legal ownership of the underlying gold.

"Customers should also get clear information on purity, storage, insurance, fees, redemption, and what happens to their gold if the platform fails," he said.

The importance of these safeguards stems from the structure of digital gold itself. An investor may buy a small quantity through an app, while the corresponding physical gold is held in a vault through the platform or its partner. Without common regulatory standards, investors may not have uniform clarity on how the gold is held, whether it is fully backed, who has legal title to it or what happens in case of a platform failure.

"The basic assurance should be simple: the gold shown in the digital account exists, is safely held, and remains the customer’s property even if the platform faces problems," Luniya said. "This should be the foundation of digital gold regulation."

Will Regulation Make Digital Gold More Expensive

Tighter rules could raise compliance costs for platforms through requirements around custody, audits, reporting, technology, cybersecurity and capital adequacy. That could put pressure on smaller players and potentially encourage consolidation.

But Luniya said regulation should not be designed around the size of a platform.

"Some degree of consolidation may be possible, but regulation should not be designed in a way that drives smaller companies out of the market," he said.

Instead, he said, platforms should compete on governance, custody and transparency rather than scale.

For investors, the concern is whether tighter regulation will make digital gold costlier, especially for those investing Rs 100 or Rs 500 at a time. The low entry amount has been one of the main reasons for its popularity. An industry estimate cited by The Economic Times puts India’s digital gold market at around $3 billion, with the average transaction size at about Rs 100.

The latest World Gold Council data shows that demand is still growing. Digital gold purchases averaged around Rs 2,500 crore a month between June and August 2026. For small investors, even a small rise in fees can matter. Luniya said regulation should preserve that accessibility.

"Regulators could consider proportionate requirements so that a Rs 100 investor gets the same level of protection as a Rs 1 lakh investor, without making small transactions too expensive," he said.

The regulatory debate, therefore, is not just about bringing digital gold under oversight, but also about ensuring that compliance costs do not undermine its accessibility.