Pros and cons of investing in digital gold schemes

Question: My relatives and friends in India are of the view that it is easy and profitable to invest in digital gold or e-gold products through online platforms.

- HP Ranina

I want your views whether this is feasible and whether there are any risks involved in doing so.ANSWER: It is certainly feasible to make such investments but it must be noted that e-gold products on online platforms are not considered to be Government-permitted securities and therefore are not regulated by the Securities & Exchange Board of India. Hence, there is a definite risk that if an investor uses these platforms and suffers a loss, he would not be able to lodge a complaint with Sebi as its investor protection mechanism does not cover such transactions. It would therefore be advisable to invest only in regulated gold products which are gold Exchange Traded Funds (ETFs) offered by mutual funds. There are also Electronic Gold Receipts (EGRs) which can be traded on stock exchanges. Investments in these regulated gold products can be made through Sebi registered intermediaries.

Sebi has issued a warning to investors in respect of e-gold and digital gold products being sold by unregulated entities. These products are neither notified as securities nor regulated as commodity derivatives. Hence, they operate entirely outside the purview of Sebi regulations. The regulator has cautioned that such digital products will entail significant issues for investors and may expose them to counterparty and operational risks. In such a case, none of the investor protection mechanisms would be available.