SEBI has warned investors of risks, prompting calls for self-regulation to boost investor confidence and ensure secure, audited holdings.

The country’s fascination with gold has gone online, and the shift is happening at breakneck speed. What was once largely a jewellery-driven market has now spawned a booming trade in “digital gold”, popular especially among first-time and young investors. And it is growing despite a clear warning from the markets regulator that this product is outside the regulatory net.

Many investors confuse digital gold with gold exchange-traded funds (ETFs). But the two are very different. ETFs are regulated financial securities. Digital gold, on the other hand, is simply gold bought and stored on a private fintech platform, and it is not governed by SEBI or commodity market rules.

What Is An ETF?

An exchange-traded fund, or ETF, is a market-linked investment product that trades on the stock exchange just like a share. A gold ETF tracks the domestic gold price and is backed by physical gold held by a custodian. Investors need a demat account to buy or sell ETF units, and the product is fully regulated by SEBI, making it part of the formal financial system, unlike digital gold.

Yet the appetite is unmistakable. According to the World Gold Council (WGC), Indians bought an estimated 12 tonnes of digital gold between January and November this year. The estimate is based on National Payments Corporation of India (NPCI) data on UPI transactions, released for the first time, and pegs the value of these purchases at around Rs 16,670 crore at current Mumbai spot prices for 24-carat gold. Industry officials say the figure was close to 8 tonnes last year, pointing to a sharp year-on-year jump.

The appeal is simple. Buyers do not have to worry about storage, theft, or purity. Transactions happen online through fintech apps, and purchases can start from as little as Re 1. That micro-ticket entry point has made the product a hit among millennials and Gen Z.

But the November advisory from SEBI was a reality check. The regulator reiterated that digital gold is not a recognised security and remains outside the formal market framework, unlike gold ETFs and electronic gold receipts, which are fully regulated. Industry players admit purchases dipped after the warning, though buying has continued.

Sachin Jain, WGC’s regional CEO for India, told Economic Times that gold remains a core household asset and digital formats simply extend that tradition. Digital gold makes it easier to access gold through fractional ownership and transparent, market-linked prices, and it removes worries about storage and purity, he said, adding that digitalisation is key to keeping gold relevant.

The market is currently dominated by MMTC-PAMP, Augmont and SafeGold, which store physical bullion in vaults against the digital units sold. Investors can liquidate their holdings instantly on the platform, adding to its attraction.

To address regulatory gaps, the India Bullion and Jewellers Association (IBJA) is setting up a self-regulatory organisation (SRO) that will begin onboarding digital gold companies from January. The proposed framework will mandate full physical backing of customer holdings, secure vault storage, regular audits and minimum net-worth criteria for players. “We are developing technology to onboard and regulate digital gold players. All digital gold companies will be audited from time to time. This will increase investor confidence and deepen the market,” IBJA national secretary Surendra Mehta said. The rules are expected to be ready by March-end or early April.

Industry insiders say nearly two-thirds of digital gold buyers are in the millennial and Gen Z brackets. A senior executive at a leading platform admitted there was a lot of confusion after SEBI’s advisory, with many buyers temporarily stepping back before returning.