Should you hold or exit digital gold investments? Key points to know after SEBI warning

The Securities and Exchange Board of India’s (SEBI) recent advisory has drawn fresh attention to Digital Gold. Although the decision to continue or exit your investment depends on your individual situation and the platform you use, the market regulator’s message is clear.

Expert suggests the situation is not one of immediate panic. Pankaj Mathpal, MD & CEO at Optima Money Managers highlighted the nuance regarding safety.

"Digital gold carries significant risks, and SEBI has cautioned investors about it. However, this doesn’t mean it is entirely unsafe. Its safety largely depends on who the seller is and how the gold is stored," said Mathpal.

He further stressed the current regulatory gap: "Digital gold is not a regulated product, and SEBI’s investor protection mechanisms applicable to securities do not cover any risks associated with it. However, this does not mean that digital gold is entirely unsafe."

What should investors who already hold digital gold do?

Ronak Morjaria, Partner at ValueCurve Financial Services, advised investors to exit Digital Gold following SEBI’s recent circular

"With the recent circular that came in from SEBI, it is advisable to exit Digital Gold and reinvest the proceeds the same day in Gold ETF or Gold Funds of Mutual Funds. If one were investing regularly / monthly in Digital Gold, then for him, SIP in Gold Fund is more convenient as you can automate your monthly savings in Gold," said Ronak Morjaria, Partner at ValueCurve Financial Services.

What about new investors?

For new investors, it is advisable to stick to regulated products such as Gold ETFs, Gold ETFs Fund of Funds, or Sovereign Gold Bonds, added Mathpal.

"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."

This lack of regulation carries significant risks, as SEBI stated: "Such digital gold products may entail significant risks for investors and may expose investors to counterparty and operational risks. Investors/participants are made aware that none of the investor protection mechanisms under securities market purview shall be available for investments in such Digital Gold/ E-Gold products."

SEBI reminded the public that it has already enabled investments in safe, regulated gold products, including Exchange Traded Commodity Derivative Contracts, Gold ETFs offered by Mutual Funds, and Electronic Gold Receipts (EGRs).