Sebi cautions investment advisers against dealing in digital gold

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More than a month after the stock exchanges cautioning brokers against digital gold, SEBI has now asked investment advisers not to deal in e-gold.

Digital gold products are electronic receipts that show that investors have made investments in the metal, according to the Times of India. Instead of keeping actual gold in vaults, the initial sellers of such digital gold investment products retain it in vaults.

“Investment advisers are engaged in unregulated activity by providing platform for buying/ selling/ dealing in unregulated products including digital gold. …. Investment Advisers are, hereby, advised to refrain from undertaking such unregulated activities,” the Securities and Exchange Board of India said in a press release.

Gold exchange-traded fund (ETF) units are identical to this product and are regulated by the SEBI.

The NSE in August had cautioned its members against providing facilities for their clients to purchase and sell digital gold.

Unlike the stock market or the banking sector, the gold market is not regulated. If the gold-issuer faces financial issues, customers have only consumer forums for grievance redressal. Also, there is no physical gold to back the investment whereas in ETF the AMC is responsible for buying physical gold for every unit purchased. Also, in an ETF there is a custodian of physical gold purchased.

It is advisable to stay away from unregulated products.

Should you buy digital gold, buyers may approach Augmont Gold and MMTC-PAMP India (a joint venture between state-run MMTC and Swiss firm MKS PAMP.

Alternatively, you may go for sovereign gold bonds or gold mutual funds.