Will digital gold lose its luster under tighter regulation?
The investment avenue, which has caught the attention of tech buffs and young people, has also caught the attention of regulators RBI and SEBI; what awaits us?
India, one of the world’s largest consumers of gold, whether in the form of jewelry or coins purchased as an investment, has also quickly embraced digital gold. Digital gold, which provides an easy, contactless way to buy and store gold securely, is particularly attractive because it allows the yellow metal to be purchased in very small denominations – it can even be purchased. for 1 . The tech-savvy population and young people have been among the biggest buyers of digital gold.
Yet, like other forms of emerging digital investments such as cryptocurrencies, digital gold sits in a regulatory gray area. Taking note, the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) are reportedly developing new guidelines to bring digital gold, cryptos and other digital assets into their scope. .
While stricter regulations will make digital gold a safer investment option, industry players believe the accompanying rules and regulations may make it less attractive to sellers and buyers. How the stakeholders strike a balance will decide the progression of the segment.
What makes digital gold so attractive?
Consumers can buy digital gold from the companies that offer it. Currently, Augmont Gold, MMTC-PAMP India and SafeGold (led by Digital Gold India) are the only companies in this segment in India.
Read also : RBI Retail Direct: no masterpiece, just breaststroke out of the water
Buyers can source gold from them through entities that provide the facility – GooglePay, Paytm, PhonePe, Motilal Oswal, and HDFC Securities are just a few examples. They can place the order and pay online, after which the selling entities procure the physical gold for the customer and store it in insured vaults. Customers can also request physical delivery of gold, which will be delivered to their door in coins or bullion, for a fee.
The sales process is just as simple. Customers can use the same platform to sell their gold in any quantity, at any time. They can also use digital gold as collateral when they then take out loans online. Additionally, gold comes with high levels of purity.
Now come the downsides. On the one hand, there is a limit of ₹ 2 lakh on most investment platforms; this means that one cannot make a substantial investment in this asset. For another, there are significant charges applied to delivery, etc.
More critical, however, is the lack of regulation in India. It is to respond to this problem that the RBI and SEBI are on the drawing board with projects to tighten standards.
The physical gold industry is also concerned. The India Bullion & Jewelers Association (IBJA) reportedly appealed to SEBI, asking it to regulate digital gold. The IBJA highlighted concerns about the storage of physical gold against digital purchases. There is a fear that not all digitally purchased gold will be stored in vaults.
What RBI and SEBI can offer
While SEBI and the RBI do not yet know who controls cryptocurrencies, there is no doubt that digital gold will be governed by the regulator of the markets.
The first bursts have already been fired. On October 21, SEBI issued a circular prohibiting registered investment advisers (RIAs) from engaging in “unregulated activities”. This would include mining platforms where users can buy and sell digital gold. Some financial technology (fintech) companies have started shutting down their digital gold operations as a result of the circular, it was reported.
In the absence of legislation dealing directly with digital gold, what SEBI has tried to do is introduce checks and balances at critical times. It has issue standards that apply to various entities in the digital gold supply chain, such as brokers, fintech platforms, trustees, and investment advisers. This makes it infinitely more difficult – albeit more secure – for the lay investor to buy gold online.
The Center, meanwhile, is considering amending the SEBI Law and the Securities Contracts Regulation Law so that digital gold is classified as a securities. This would put him directly under the tutelage of SEBI, the media said.
The Center could also consider establishing regulated gold exchanges which, once again, would come under SEBI’s radar.