Digital gold has exploded in popularity across India, but few weeks back, SEBI finally said the quiet part out loud: it’s completely unregulated. And surprisingly, that’s not because regulators turned a blind eye but because digital gold simply doesn’t fit into any of the boxes they oversee. Yet despite this gap, or perhaps because of it, the market ballooned into a ₹13,800 crore phenomenon. So the real question is: how did a product sitting outside every rulebook become one of India’s hottest investment trends? Lets dive deeper into the topic with the Alphastreet’s Research Desk:
The Story
SEBI’s recent statement made one thing clear, digital gold is in a regulatory no man’s land. It isn’t a security like shares. It isn’t a derivative like gold futures. And since it doesn’t fall under banking, deposits, or payment products, RBI can’t supervise it either. It’s simply a digital representation of physical gold that platforms promise to store on your behalf. When you tap “buy”, you’re trusting the platform to actually hold that gold in a vault somewhere, fully backed and ready to redeem whenever you ask.
But that trust is exactly the problem. Digital gold platforms operate like any private business. There’s no legal requirement for them to publish audits, prove how much gold they hold, or even guarantee that customer balances are fully backed at all times. And if even one major platform were to fall short and people rushed to redeem, we could be staring at a crisis none of us saw coming.
Yet despite this risk, digital gold didn’t just survive, it flourished. And that takes us to the beginning of the story, and how this shiny idea took off in the first place.
The Spark That Started It
The digital gold wave began in 2012 when Augmont, a major precious-metals company, spotted a massive gap in the Indian market. Back then, investors really had only two practical options: buy physical gold and deal with the hassle of storing it, or invest in gold ETFs through a demat account, which wasn’t all that convenient or accessible, especially for small savers. Augmont flipped the script by introducing fractional digital gold. Suddenly, anyone could buy gold online for as little as ₹1 while the company managed the vaulting. They even let customers pay through instalments. For a country emotionally attached to gold, the idea was irresistible.
Before long, the space saw a heavyweight arrival. MMTC-PAMP, India’s largest refiner and a name associated with purity entered the arena. They struck partnerships with Paytm, PhonePe, Motilal Oswal, and others, giving digital gold massive distribution.
Why the Platforms Loved It
Around 2017, the RBI tightened wallet regulations, making KYC mandatory for most digital transactions. It created friction for users and platforms alike. But digital gold purchases under ₹2 lakh didn’t require KYC. So wallet players realised something clever. They let users buy gold inside the app and they wouldn’t need to complete KYC just to store small amounts of value. It became a workaround that kept customers engaged.
But that wasn’t the only benefit. Digital gold turned into a perfect onboarding hook. Once people got comfortable buying gold on an app, companies nudged them into mutual funds, stocks, and other financial products. That’s why brokers like Groww, Upstox, and HDFC Securities also jumped in. And with every new platform came more users, more trust, and more momentum.
By 2021, stockbrokers alone accounted for nearly 10–12% of the ₹5,000 crore digital-gold market. And here’s the statistic that made regulators uneasy, almost 85% of buyers never asked for physical gold. Meaning platforms could theoretically get away with holding less gold than they owed, and no one would notice for a long time. Without enforced audits, even an accidental mismatch could go undetected.
Where Regulation Hit a Dead End
This was the moment regulators woke up to the scale of the problem. But by then it was too late, not to act, but to act meaningfully. No regulator had jurisdiction over digital gold because of how it was classified. It belonged to no one. SEBI couldn’t regulate it. RBI couldn’t regulate it. And since neither had the legal power to ban it outright, digital gold lived in a grey zone, not approved, not disallowed, just… there.
So SEBI did the only thing it could: it told stockbrokers and registered advisers to stop offering or recommending digital gold. But the product itself? Still freely sold. Platforms capitalised on the ambiguity, much like jewellers do with traditional gold-saving schemes, trust-based, unregulated, technically legal.
And that’s how digital gold scaled into a ₹13,800 crore industry with no formal oversight.
What This Means for You
SEBI has now made its concerns very clear, if things go wrong, it has no authority to step in and protect investors. But that doesn’t mean you hit the panic button. Experts suggest a gradual transition to regulated products like gold ETFs or Electronic Gold Receipts (EGRs). These not only offer tighter oversight but also tend to be more cost-efficient because digital gold usually comes loaded with storage fees, insurance, platform margins, and, of course, a 3% GST on every purchase. Which means gold prices could rise the next day and you might still end up selling at a loss.
So if you already own digital gold, you have a few choices: redeem it physically, sell and switch to ETFs or EGRs, or simply let your existing balance sit there if you trust the platform, though that trust is entirely your call. What you shouldn’t do is trigger panic exits. Ironically, panic is the only thing that could turn a hypothetical risk into a real one.