Digital Gold: The option of digital gold for investment in gold is increasingly attracting investors. However, from September 10 next month, you will not be able to buy it through a stockbroker. This will happen due to a directive from the market regulator SEBI. SEBI has instructed the exchanges that brokers can no longer sell digital gold. Experts have cautioned about this but you can still buy digital gold from non-banking platforms or wallets as per RBI guidelines. SEBI has termed the sale of digital gold as a violation of Rule 8(3) of the Securities Contracts (Regulation) Rules, 1957. Under the Securities Contracts (Regulation) Rules, 1957, digital gold is not considered a security. The National Stock Exchange (NSE) has directed all its members, stockholders and wealth managers to stop selling it on its platform from September 10.
Digital gold is rapidly gaining traction among the youth as one can invest in it through cashback rewards offered by mobile and online platforms and wallets. During the lockdown imposed due to Corona, its sales increased rapidly as it was not possible to go to jewelery stores during that time. Apart from this, due to the lack of storage cost, the trend of investing in the electronic form of gold increased rapidly.
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What is Digital Gold?
Investors can buy digital gold without holding the gold in physical form. It is sold by three metal trading companies – Augmont Gold, MMTC-PAMP India (a joint venture between state-owned MMTC and Swiss company MKS Pamp) and Digital Gold India through the SafeGold brand. These companies buy physical gold and then keep it in a secure vault and sell digital gold on stock broking, non-broking and metal trading platforms. The investor can either take physical delivery of it in the form of coins or booleans or can sell the purchased gold digitally.
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The sale of digital gold will continue on these platforms
Digital gold is not regulated by any regulator and due to this concerns are raised whether the certificate of investment is backed by physical gold or not. However, investors believe that the metal trading firm holds gold equivalent to the value of digital gold in its vaults and is ensured by IDBI trustees. Stock brokers will stop selling digital gold from next month but wallets and platforms will continue to sell it. Non-broking platforms like PhonePe and Google Pay will not be affected by SEBI’s new directives and will continue to offer digital gold to their customers. Augmont Gold offers Digital Gold to its customers directly through its platform.
What should investors do?
- Investors who have bought digital gold can either sell it through brokers or take physical delivery. From September 10 onwards, investors will have to deal directly through metal trading companies.
- According to Gautam Kumar, co-founder and head of investment and research firm Pennywise, people who have bought digital gold need not panic as they automatically become members of the gold provider/manufacturer. According to Gautam Kumar, if you want to keep your investment, then after September 10, you have to be in direct contact with the manufacturer of the product or if you want, you can exit your investment through a broker.
- According to Chirag Mehta, Senior Fund Manager (Alternative Investments), Quantum Mutual Fund, investors should look for safe and regulated ways to avoid any problems in future. According to Mehta, gold ETFs and gold fund-of-funds are better options for investment. These are regulated and they are backed by 24 karat physical gold. Apart from this, they are available in low multiplier i.e. low weight and are liquid. Apart from this, the investment in them is price and tax efficient.
- Investors can also go for Sovereign Gold Bonds as they earn annual interest and are tax efficient but have low liquidity in the secondary market, leading to price inefficiency.
(Article: Saikat Neogi)