Digital gold players to form self-regulatory organisation by Nov-end after SEBI caution

Digital Gold companies to form SRO

Digital gold companies are in discussions to form a self-regulatory organisation (SRO) by the end of this month, four industry sources told Moneycontrol on condition of anonymity.

The move follows an advisory issued earlier this month by the Securities and Exchange Board of India (SEBI), which warned consumers that the digital gold industry is currently unregulated.

Gold manufacturing and safekeeping companies, MMTC-PAMP, Augmont, CaratLane, Jar and SafeGold, have been in talks to establish an organisation that will work towards creating guidelines for the industry and an SRO framework.

The proposed body is expected to ensure that customers’ digital gold holdings are audited and fully backed by physical gold stored in secure vaults.

These companies have also been in talks with digital gold distributors, including Paytm, PhonePe, Google Pay, IndiaGold, Gullak and Amazon Pay, among others, to join the proposed organisation.

While buying digital gold is legal, there is still no clarity on whether it is regulated or formally recognised by any government authority. SEBI’s advisory has caused concern among industry participants.

Multiple gold-buying platforms have seen stable demand for digital gold even after the SEBI advisory, but they told Moneycontrol that some recognition or regulation will help grow the industry further.

One of the many concerns is that if the platforms selling digital gold shut down their operations, customers will find it difficult to withdraw their money/gold.

Another major concern is that if the platforms are not buying physical gold of the same value from manufacturers and are not audited by an independent external organisation, customers could fall prey to fraud.

However, most platforms do have third-party audits ensuring the same, but these reports are not verified by any government body.

According to a recent Augmont report, Indians have cumulatively bought an estimated 45 tonnes of digital gold worth Rs 55,000 crore.

The value of digital gold purchased through UPI rose to Rs 2,290 crore in October, compared to Rs 1,410 crore worth of digital gold purchased in September. UPI is the most popular method for buying digital gold in the country.

The number of gold purchasing transactions also rose from over 103 million in September to 116 million in October, a 13 percent rise.

This means that an average gold buying transaction is Rs 230, a small fraction of one gram of gold. These have been popular among millions of lower-middle-class Indians who want to buy gold every month in limited quantities.

The rise in gold price and its role as a safe haven, the ease of purchase and accessibility and more importantly, the fractional ownership drove the customers' interest in digital gold. Customers can buy gold from Re 1 to around Rs 2 lakh per day.

Most fintech platforms sell digital gold as a savings or investment product. The gold value is tokenised by companies like MMTC-PAMP or SafeGold. Customers can sell the gold whenever they want or take delivery of the physical gold.

Investing in digital gold entails GST, storage costs and platform fees. Meanwhile, Gold ETFs are mutual funds that invest in gold and offer the same fractional ownership with fewer charges, apart from being regulated by SEBI.

However, customers need to open a demat account to invest in Gold ETFs. This is akin to investing in the stock markets, hence a large majority of the users find it convenient to purchase digital gold over ETFs.