Fortune Indian Explainer: Why must you be aware of digital gold?

The Securities and Exchange Board of India (Sebi) has issued a warning to the public about the increasing trend of investing in unregulated digital gold products. Sebi has advised investors to exercise caution and select only regulated gold investment options that it oversees.

Understanding Sebi-regulated gold investments

The regulator, Sebi, has reminded investors that there are safe and regulated ways to invest in gold. Sebi has facilitated investments in gold and related instruments through various regulated gold products such as exchange-traded commodity derivative contracts, Gold Exchange Traded Funds (ETFs) offered by mutual funds, and Electronic Gold Receipts (EGRs) tradeable on stock exchanges. According to the regulator, these investments can only be made through Sebi-registered intermediaries and are governed by the regulatory framework set by the regulator.

These regulated avenues provide transparency, investor protection mechanisms, and are overseen by Sebi to guarantee compliance and safeguard investors.

The growing lure of ‘digital gold’

Despite these legitimate options, the regulator has noticed that several digital and online platforms are now offering what they call 'Digital Gold' or 'E-Gold Products.' Sebi has stated that digital gold is being marketed as an alternative investment to physical gold. These platforms attract investors by highlighting convenience and small-ticket investments, but, according to Sebi, they are not subject to any regulatory oversight.

This means they are neither recognised as securities nor regulated as commodity derivatives. Sebi has warned that these so-called digital gold products operate entirely outside its purview and are therefore not covered by the rules or protections that apply to regulated investments.

Q1. What is digital gold, and how has it been operating so far?

For nearly a decade, platforms such as MMTC-PAMP, SafeGold, and Paytm have sold fractional digital gold. While these products were unregulated, they became widely trusted among investors. Over time, they attracted significant public participation without formal oversight from SEBI or the Reserve Bank of India.

Q2. Why is SEBI intervening now, after years of allowing digital gold to grow?

According to Aishwary Gupta, Head of Strategy at Polygon Labs, SEBI’s move represents “regulation by hindsight.” He said, “They let digital gold flourish for years under fintech optimism, and now they are stepping in only when it starts to look risky. This is about cleaning up before regulated tokenised gold can take shape.”

In short, Sebi tolerated digital gold during its growth phase but now wants to prevent risks before the ecosystem scales further.

Q3. How big is the digital gold market in India right now?

According to Gupta, the market has grown to over ₹10,000 crore in circulation, with millions of investors participating. Many of these investors mistakenly assumed that digital gold products were under Sebi’s supervision, which is not the case.

Q4. What are the main risks or concerns behind SEBI’s move?

Several key factors appear to be driving SEBI’s caution:

Scale: With over ₹10,000 crore circulating in unregulated form, the market lacks consistent transparency and auditing.

Blurred lines: Some platforms have introduced gold SIPs, gold-backed loans, and tokens, which blur the distinction between securities and commodities.

Custody risks: There are fears that equivalent physical gold reserves may not fully back digital balances.

Policy timing: India is preparing new frameworks for tokenised real-world assets (RWAs) under SEBI and IFSCA, and this requires closing existing grey zones before implementation.

Q5. How does this fit into Sebi’s broader regulatory approach?

Experts say this move reflects SEBI’s familiar “pre-crisis containment” strategy — a pattern seen in past cases like Sahara and PACL. In those cases, the regulator allowed informal systems to operate quietly until they became too large or risky, and then stepped in for a decisive clean-up before a potential blow-up.

Q6. What might happen next in the digital gold space?

The warning could be a precursor to a formal framework for regulated tokenised gold, ensuring investor protection, better custody standards, and transparent audits. "Once Sebi finalises the rules for tokenised RWAs, current digital gold products may need to be restructured or migrated to the compliant system," says Gupta.