“Digital gold” is a relatively new product, which has been in the market for about a few years.

So, what is digital Gold?  Digital gold is a way to purchase gold electronically through an online platform, where small quantities of gold can be bought, and they are stored in secured vaults, on behalf of the investor.

Most good players segregate the amount invested by the investor from their regular stock and keep it separately at an identifiable location. It is generally exchanged/ redeemed for jewellery or a gold bar. Few buyers/investors also choose to exchange it for money.

The advantage of digital gold is that it can be bought (or sold) 24/7 and also for small amounts.  i.e. for as small as Rs 10 or Rs 100 and can be accumulated over a period.

SEBI has always maintained the position that this product is not a ‘security’ or a product traded on the commodity exchange and thus, not under its purview or supervision.

In this press release, SEBI has once again clarified that digital gold is not a SEBI supervised product and investors should be cautious. It should be noted that the SEBI press release has not raised any new red flags but it is advisable that buyers/ investors are cautious and judicious in their selection of platform/ seller of digital gold, keeping in mind the counterparty risk.

Therefore, it is critical that buyers of digital gold should check the reputation of the seller offering the product. It would be advisable for buyers/ investors to choose a seller who stores gold separately from his own stock preferably with some independent vault manager. Most good players also appoint an independent administrator /auditor to verify the entire operation.

An important aspect to consider is that it is not the Government’s duty to regulate all activities. Instead, trade itself should develop a strong self-regulatory organization (SRO) to regulate this product and safeguard interest of buyers / investors and build trust in the product.