Should you invest in digital Gold?

Since ancient times gold is considered a precious metal that is irreplaceable due to its uniqueness and purity. This yellow metal is not only a symbol of power and wealth but also an attractive investment option for your portfolio diversification. India is the Second largest consumer of Gold which indicates that gold always has a special place in people’s hearts. In recent times, we can see the shift from physical gold to digital gold investments considering the storage charges, the threat of loss, theft, and loss of gold value due to making charges.

In India, digital gold can be purchased from MMTC-PAMP, Augmont, and Digital Gold India (SAFEGOLD). These sellers offer online platforms for buying digital gold directly or through authorized platforms. Several companies in India, including fintech platforms like Paytm,  PhonePe,  and a host of new-age Fintechs are asking investors to invest in digital gold via these platforms. Nowadays you just need 100 rs to start with your digital gold investment, this attracted the majority of Indian middle-income households. As per SafeGold, an estimated 100 million consumers have purchased digital gold. We believe that this number will only continue to grow in the coming years. But have you ever thought about the regulatory aspect of these digital gold platforms?

Should you invest in digital Gold?

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Certainly Gold can be a hedge in your portfolio or at times can also be used to counter inflation, however, the question is whether you should go for Digital Gold. Since currently Digital Gold is not controlled by any regulatory authority.

Digital gold is being sold by various fintech companies and small to medium-sized jewellers, but it is currently unregulated in India. This means that if the entity you purchased it from goes out of business, you may have no recourse to recover your investment. There is also no regulatory body or mechanism in place to address grievances related to digital gold. In fact, the Securities and Exchange Board of India (SEBI) has prohibited stock brokerage firms from selling digital gold, and SEBI-registered investment advisors are not allowed to recommend it to their clients. Therefore, it is crucial to be aware of the risks associated with investing in a new and unregulated product like digital gold.

SEBI’s gold exchange framework and digital gold are totally different. Firstly, digital gold is not classified as a security under the Security contract regulation act(SCRA), so stock brokers would not be able to trade in it.  Secondly, digital gold is still running outside the gold exchange framework.

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While digital gold is currently unregulated in India, there are other paper-based gold investment options available that are classified as securities, such as gold exchange-traded funds (ETFs), gold mutual funds, and Sovereign Gold Bonds(SGBs). In fact, SGBs offer you an interest of 2.5% over and above the Gold returns which makes it a good option while investing in Gold.

Also read: 3 Benefits of investing in Gold in your portfolio

Sovereign Gold Bonds:

Sovereign Gold Bonds are an alternative to purchasing physical gold. They offer investors the opportunity to own gold without the need to store it physically. The bonds are issued for a period of 8 years and the investment can be redeemed in cash on the maturity of the bond.

Sovereign Gold Bonds are considered a relatively safe investment, as they are backed by the government of India. They also offer many other benefits, including a fixed rate of interest, tax benefits, and the option to sell the bonds on the secondary market. Sovereign gold bonds may be a good choice if you can commit to the eight-year lock-in period, after which capital gains are tax-free.

Gold ETFs:

Gold mutual funds and ETFs are considered safe investment options for retail investors and offer flexibility and easy liquidity. However, to invest in gold ETFs, you will need a Demat account,  Gold Exchange Traded Funds (ETFs) are investment vehicles that track the price of gold. In India, gold ETFs can be purchased on a stock exchange, such as the National Stock Exchange (NSE) or the Bombay Stock Exchange (BSE). They are considered a relatively safe and convenient way to invest in gold, as they offer the benefits of owning gold without the need to store it physically.

Gold Mutual Funds:

Gold mutual funds are investment vehicles that invest in gold-related securities, such as gold mining companies, gold bullion, and gold ETFs. In India, Gold mutual funds can be a good investment option for those who want to invest in gold as part of their investment portfolio, but do not want to purchase physical Gold or Gold ETFs.

Transaction Costs:

When it comes to transaction costs, The goods and services tax (GST) applies to transactions of digital Gold. Additional charges for storage and insurance may also be added. If you choose to receive physical gold upon redemption, additional charges may apply. In the case of ETFs and Mutual funds brokerage and fund management charges shall be applicable and are subject to SEBI limits.

Also read: REITs and InvITs: Challenges and Opportunities

Leasing in Digital Gold:

Of late some fintech platforms have come out with innovative products such as leasing the investors digital Gold to Jewellers and thereby promising an additional 4 to 5% to Gold returns, I believe that this proposition could add more risk to digital gold which is already vulnerable to credit risk.

Investing in digital gold does not offer any significant advantages compared to investing in regulated Gold products. The only major difference is that digital Gold offers the option of physical delivery, while the others do not, which should really not matter if the objective is an investment in Gold.

Conclusion :

Digital Gold is unregulated in India, market regulator SEBI has asked Brokers and RIA’s to refrain from transacting/recommending Digital Gold. Therefore investing in digital Gold could prove to be a riskier proposition until there is some regulation in place that can protect the investor’s interests. It would be prudent for investors to choose Gold ETFs, MF or SGBs over digital gold based on their investment objective.


This article should not be construed as investment advice, please consult your Investment Adviser before making any investment decision.

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About the author

KishorKumar Balpalli, believes that financial literacy and discipline is the key to one’s financial freedom. KishorKumar is a Certified Financial Planner, Personal Finance Blogger & the Founder of an award-winning Wealth Management platform. myMoneySage simplifies investing for individuals and amplifies business growth for Registered Investment Advisers by leveraging Artificial intelligence and machine learning. The AI of the machine plus the intellect of the human advisor enables comprehensive & client-centric advice at a fraction of the cost of a conventional adviser. is an award winning personal finance platform. It helps you aggregate all your personal finance accounts like FD, Equity, Mutual Funds, PPF EPF, NPS including, Credit Cards & Loans etc. It's one place where you can track, plan and invest seamlessly. empowers you to invest in zero commission direct plans of mutual funds thereby helping you generate higher on investments. The best part is it comes with a lifetime Free plan.

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