scorecardresearchFollowing SEBI's orders, digital gold investors to opt for redemption

Following SEBI's orders, digital gold investors to opt for redemption

Updated: 21 Mar 2022, 11:41 AM IST

SEBI banning online stockbrokers from digital gold forces customers to look elsewhere.

Investing in gold

Investing in gold

The National Stock Exchange (NSE) barred its members including stockbrokers from selling digital gold on their platforms citing that the said activity contravenes the conditions laid down in the Securities Contracts (Regulation) Rules (SCRR), 1957. The directions came after the Securities and Exchange Board of India (SEBI) found some of their members lending a platform to their clients to buy and sell digital gold. These online stockbrokers and digital payment companies allowed their customers to buy digital gold with each digital gold unit backed by 24 carats of gold of 99.9% purity.

Why buy digital gold?

Many investors flocked to this scheme as they were allowed to

  • Invest in 24 carats gold from the comfort of their homes
  • Buy gold at any time of the day including on weekends and public holidays
  • Pay for gold in fractional quantities
  • Pay for gold at prices as low as Re 1
  • Invest in gold safely through the digital mode
  • Escape from the hassle of storing physical gold

The digital gold bought by investors was stored in the MMTC-PAMP’s vaults in their names. They could take possession of this gold any time they wanted by redeeming units for 24 carats pure gold coins or gold ingots.

Debarred from dealing in digital gold

The reminder from SEBI came on August 10, 2021, amidst a warning to all members from engaging, either as owner or employee, in any business other than that of stocks or commodity derivatives and underscored how digital gold was not included in the list of securities under the SCRR Act.

SEBI underscored the following reasons for banning digital gold.

  • Digital gold is a non-broking business and, hence, not within the purview of the SCRR Act.
  • Fear of potential misuse of money of investors’ money by the brokerage platform.
  • Difficulty in monitoring the credibility of companies that buy and sell the gold.
  • Constant concern over high allocation of virtual assets to investors

According to these directions from the SEBI, major stockbroker platforms like, PhonePe, Google Pay, PayTm, MobiKwik and others had stopped allowing their customers to invest in digital gold with them. What many investors now want is if it would affect their prospects of buying digital gold. Suresh Sadagopan, founder, Ladder7 Financial Advisories explains, “SEBI banning someone from selling digital gold does not affect customers, who have bought it. Customers have the choice always to buy from anywhere and hold it. Only that some SEBI registered Intermediaries will no longer be able to sell it.”

Investing in digital gold? You may not like this new regulation

What next?

Most financial services providers were tied up with MMTC-PAMP, SafeGold or Augmont. These online platforms were merely distributors of digital gold products of these companies. However, with the exchange issuing a directive for such products not to be sold or purchased from stockbrokers with the exchange, investors will not be able to park their money towards digital gold through them.

However, this ban leaves us with a very important question regarding customers who had already been paying in bits towards digital gold on these platforms. Will the money invested by them be returned to them or will the same be added to their digital wallets?

Neelabh Sanyal. Founder & COO, Kuvera shares, “In compliance with the SEBI press release on Digital Gold, we have migrated users with gold holdings to Augmont, our erstwhile partner for Digital Gold. These users can maintain continuity and access to their Digital Gold holdings directly on the Augmont website and mobile application.”

Speaking on the redemption of the invested amount, Sanyal adds, “To minimise inconvenience, this was done in a phased transition where we restricted further purchase orders but continued to support redemptions on Kuvera till the migration got completed. While users had the option to redeem their digital gold, many have preferred to retain their holdings and continue with Augmont. This is sensible since an untimed redemption could result in tax incidence.”

Regarding delivery, “The option of delivery may come with the added cost of delivery and making charges since the gold needs to be delivered to them in the form of a coin or an ornament. From a cost perspective, rather than take delivery and then exchange this gold into the required form by paying making charges again, it is probably better to just redeem and buy physical gold from their jeweller exactly as per their requirements,” shared Sanyal.

First Published: 21 Mar 2022, 11:41 AM IST