All That Glitters Is Not Digital Gold: Know What Investors Should Do Post Sebi's Warning

Gold has been a major driver of conversations centred around investment in 2025. Investors big and small alike have tried to add the yellow metal to their portfolio in multiple ways for its safe-haven appeal in a year dominated by macroeconomic uncertainty and volatility in the market. Digital gold also gained currency in 2025, according to a report by Augmont, a precious metals company. Indians have purchased an estimated 45 tonnes of digital gold worth Rs 55,000 crore as of November.

Amid this surge in buying activity, Sebi issued a warning regarding the purchase of digital gold. The market regulator mentioned in a release that “Digital Gold/E-Gold Products,” which are sold as an alternative to making an investment in physical gold, are not regulated and fall outside the regulatory purview of the Sebi. The market regulator highlighted that buying such products can expose investors to counterparty and operational risks. Following Sebi’s warning, investors who have purchased digital gold have been left confused about their holdings and the future of investing in digital gold.

“In this context, it is informed that such digital gold products are different from SEBI-regulated gold products as they are neither notified as securities nor regulated as commodity derivatives. They operate entirely outside the purview of SEBI. Such digital gold products may entail significant risks for investors and may expose them to counterparty and operational risks,” Sebi said.

While the India Bullion & Jewellers Association (IBJA) recently wrote to the Securities and Exchange Board of India (SEBI) urging the market regulator to bring digital gold platforms under a formal regulatory framework, the market regulator has not responded to the request publicly. Given the regulatory uncertainty, investors should be fully aware of the practical implications of owning digital gold and what they can do to reduce the risk associated with their holdings.

Risks of Investing In Digital Gold

The key risk involving owning digital gold is that it currently falls outside Sebi’s regulatory purview. Manasvi Garg, CFA and Founder of Moneyvesta, told Outlook Money that while digital gold is sold via trusted apps of jewellery chains and other fintech players, brand trust is not backed by law.

“Digital gold is typically sold via apps (often linked to brands like jewellery chains), but even the trusted platforms exist in a 'regulatory void'. Brand trust isn’t backed by law: you must rely solely on the platform’s promise that your gold is in some vault,” Garg said.

He added that while investors are protected by multiple regulatory measures when they invest in securities that come under the regulatory purview of the Sebi, the same options do not exist when they invest in digital gold. Investors who invest in SEBI-regulated securities can file complaints on SCORES. However, in the case of digital gold, if the company selling the digital gold fails, the investor will be treated as an unsecured creditor and may lose the money they have invested fully or partially.

“You cannot file a SEBI/SCORES complaint or claim from an exchange’s Investor Protection Fund, because digital gold isn’t traded on a stock exchange. If the platform or vault provider fails, you would likely be treated as an unsecured creditor in bankruptcy. In other words, you would have to join a queue of claimants and may recover only a fraction of your money (if the physical gold backing even exists or can be traced),” Garg said.

Garg added that the gold is only secured under the terms of the contract signed by the buyer at the time of purchase. However, if the contract fails to protect the investor on account of having terms that favour the platform, the investor will have no recourse.

“The only claims you have are under whatever contract or terms you agreed to with the platform. If those terms are poor or the platform has no obligation beyond bookkeeping, recovery is uncertain,” Garg said.

What Should Digital Gold Investors Do

Given the regulatory uncertainty and risks involved with owning digital gold, it makes sense to stop purchasing more digital gold. On the other hand, switching to Sebi-regulated gold instruments can secure your gold holdings. Garg advised investors to avoid panicking and move their investments gradually into regulated gold instruments.

“Given the risks, the clear move would be to avoid panic and move gradually to regulated gold investments. Do not simply pray that your digital-gold app will never fail and follow a phased redemption strategy: redeem and redeploy into SEBI‐regulated gold products over time,” Garg said.

Garg added that rush-selling entire holdings in digital gold can lead to a significant capital gains tax burden for the investor. Thus, he advised investors to sell their holdings in small tranches and use the proceeds for purchasing Sebi-regulated gold instruments in order to maintain the exposure their portfolio has to the yellow metal.

“Don’t rush-sell everything at once (that could lock in losses or incur taxes); instead, sell a portion periodically and use the proceeds to buy a regulated product,” Garg said.

Garg also urged buyers to avoid redeeming physical gold against their digital gold holdings, as doing so can lead to significant delivery charges and making charges.

“Avoid physically redeeming coins/bars unless you intend to keep them; physical delivery typically incurs making and delivery charges ranging from 3-10 per cent for coins/bars (lower end for larger weights) and can be 8-25 per cent or higher for jewelry conversion,” Garg said.

In practical terms, Garg urged investors with large digital gold holdings to sell 5-10 per cent of their total holdings each week or month and purchase regulated gold instruments if they wish to reduce the uncertainty associated with owning digital gold.

“For a large position, move money in stages. For example, sell 5-10 per cent of your digital gold holding each week or month, and immediately buy the regulated equivalent. This “staggering” helps you average the price and avoid a single-day market swing. SEBI’s own guidance is to be cautious and not overexposed to digital gold and gradually redeploy to regulated assets to match your risk profile,” Garg said.

Switching To Sebi Regulated Gold Instruments

Satish Dondapati, Fund Manager, Kotak Mutual Fund, told Outlook Money that following Sebi’s warning, individuals who currently have holdings in digital gold are expected to move their holdings to regulated instruments such as Gold ETFs and Electronic Gold Receipts (EGRs). He added that by doing so, investors can benefit from having the benefit of transparency, regulatory oversight, and ease of access, which would not be available with digital gold.

“Yes, we believe SEBI’s recent warning will accelerate the adoption of Gold ETFs and Electronic Gold Receipts (EGRs). Gold ETFs are likely to emerge as the most preferred option. The combination of transparency, regulatory oversight, and ease of access is expected to drive greater investor confidence and further strengthen the popularity of Gold ETFs,” Dondapati said.

Dondapati added that beyond the investor protection, Gold ETFs are expected to offer investors other benefits such as lower long-term costs through low annual expense ratios and better net returns as ETFs do not attract the 3 per cent GST, which is charged on the purchase of digital gold. Additionally, the period to qualify for the Long-Term Capital Gains tax for Gold ETFs is 12 months, whereas the period is 24 months for digital gold.

“Gold ETFs provide transparent, real-time pricing and typically lower long-term costs through low annual expense ratios. Digital gold, on the other hand, attracts 3 per cent GST, potential storage fees, and wider buy–sell spreads that can reduce returns,” Dondapati said.

Dondapati also mentioned that while Gold ETFs can be pledged as collateral with brokers, the same may not be possible with digital gold, depending on the contract.

“Gold ETFs can also be pledged as collateral with brokers more easily, while digital gold cannot. Additionally, Gold ETFs qualify for long-term capital gains tax after 12 months, whereas digital gold becomes eligible only after 24 months,” Dondapati said.

Gold has delivered great returns in 2025 as the yellow metal’s price is trading up by 60 per cent year-to-date at Rs 12486 per gram as of November 19. However, investors must note that while holding gold in your portfolio can be a great hedge against uncertainty, it must be done in proportion to your overall financial goal and in assets that are regulated by the Sebi.