Syllabus: GS3/Economy
Context
- The Securities and Exchange Board of India (SEBI) has cautioned the general public against investing in digital gold and e-gold products.
About
- The investment in digital gold has existed for several years, but there has been a surge in their popularity over the last one year.
- The reasons include a steep rise in gold prices, combined with the convenience, and ease of owning gold digitally through online platforms.
- The digital gold products remain unregulated and do not fall under any regulatory ambit, exposing investors to heightened risks.
What is Digital Gold?
- Digital gold refers to buying gold without physically possessing the precious metal. The price of digital gold is linked to that of physical gold.
- Digital gold is created using blockchain technology.
- It allows investors to buy, sell and store gold electronically.
- Tax: In India, buying gold, whether physical or digital, usually attracts GST, though the exact rate for digital gold can vary depending on how the provider structures the product.
- When you sell digital gold, any profit is treated as a capital gain, and the tax rate depends on how long you have held it.
Pros of Investing in Digital Gold:
- Digital gold is easy to access and allows one to sell it quickly in case of an emergency.
- Unlike traditional gold purchases, digital gold allows investors to start investing with smaller amounts.
- It also eliminates the storage hassle, which is the biggest challenge associated with physical gold.
- Digital gold allows investors to convert their investment into physical gold whenever required as it can be converted into coins, bars, or jewellery.
- Investing in digital gold does not require a demat account or margin deposits, making it a more convenient option.
Concerns Related Investing In Digital Gold
- Not regulated by SEBI or RBI.
- No guaranteed investor protection.
- Depends entirely on the company’s honesty and stability.
- Possible hidden fees (delivery, storage, or making charges).
- Limited legal recourse if something goes wrong.
Why SEBI Has Cautioned Investors?
- It has observed that several digital and online platforms are offering investors the facility to invest in digital gold or e-gold products.
- Many jewellers from both the organised and unorganised sectors are providing opportunities for investment in digital gold.
- These products are neither notified as securities nor regulated as commodity derivatives.
- These gold products may entail significant risks for investors and may expose investors to counterparty and operational risks.
Recommendations of SEBI
- Investors should look at investing in gold products which are regulated by the Sebi to avoid any kind of risk.
- Various Sebi-regulated gold products are: SEBI advises investors to use regulated gold investment options such as Sovereign Gold Bonds (SGBs), Gold exchange-traded fund (ETF), Electronic Gold Receipts (EGRs), and commodity derivatives.
- Investments in these products can be made through Sebi-registered intermediaries and are governed by the regulatory framework prescribed by the markets regulator.
| Securities and Exchange Board of India (SEBI) – It is the regulatory authority for the securities and capital markets in India. – It was established in 1988 and given statutory powers through the SEBI Act of 1992. – SEBI’s primary goal is to protect the interests of investors, promote and regulate the securities market, and ensure its orderly functioning. |
Source: IE
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