How digital gold became India's favourite unregulated investment

In today’s episode on 14th November 2025, we dive into why digital gold became such a popular product even though it remains unregulated. Limited seats for Insurance Webinar by Ditto 👉🏽 ⁠Click here to register while seats last⁠.

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  Hello folks, you're tuned into Finshots Daily. In today's episode, we dive into why digital gold became such a popular product even though it remains unregulated.

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  But folks, here's a quick side note from team Ditto. Insurance just got cheaper. Since the government removed the 18% GST on insurance premiums, life and health policy is now costless. But cheaper does not always mean simpler. That's why we're conducting a two-day insurance masterclass where we'll help you understand what to buy, how much cover you need and how to avoid common mistakes. Only few seats remaining, click the link in the description to save your spot. Now, back to the story. You've probably already heard this by now, digital gold is unregulated. That's the alarm market regulator SEBI sounded last weekend. Its message was simple. Digital gold doesn't count as a security like a stock,

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  nor does it qualify as a commodity derivative like gold futures, where traders agree to buy gold at a pre-decided price on a future date, hoping that the price increases. And since digital gold doesn't fit into either of these buckets, SEBI can't regulate it. Neither can the RBI because it's not a banking deposit or payment product. It doesn't neatly fit into anyone's rulebook. It's just a digital way of buying gold sitting outside every existing category. So, when you open an app and tap the Buy Digital Gold button, you're basically trusting the platform to take your money and store an equivalent amount of physical gold for you in a vault somewhere.

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  And if everyone who's ever bought digital gold suddenly says, "Hey, I want delivery of my gold" or "I want to redeem", the platform should ideally have enough gold to honor those requests instantly. Which is also where the precise problem lies. These platforms operate like regular businesses. They don't fall under any financial regulator. There's no law that forces them to disclose how much gold they're holding, whether it matches customer balances or whether the storage is fully backed at all times. Some claim to undergo audits, but nothing is mandated. So, even if one major platform hasn't actually stalked the gold it promised and people start redeeming in large numbers, we might find ourselves dealing with a crisis that we didn't see coming.

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  But then, it made us wonder, digital gold has been around in India for over a decade. So if it's unregulated, how did it manage to grow this big without anyone stepping in? Well, to get to the bottom of that, we'll have to understand how digital gold investments proliferated in the first place. In 2012, Ogmont, a company dealing in precious metals from refining to retailing, began experimenting with digital ways of selling gold in India. At that time, the only two practical ways to invest in gold were to buy it physically or invest in gold ETFs. These ETFs, or exchange traded funds, track gold prices by holding physical gold in secure vaults and trade on stock exchanges, just like stocks.

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  Basically, they're a convenient way to own gold without storing it yourself. But the problem with these two methods was that, in the former, you'd have to take the risk of storing physical gold on your own. And if someone wanted to use ETFs as a way to slowly save up for physical gold in the future, they'd eventually have to sell their ETF units, pay capital gain tax on the profits, and only then buy the gold. Plus, investing wasn't as simple as firing up an app back then. Getting a DMAT account to invest in ETFs was another added headache. So, you can imagine why that didn't seem feasible for small investors and why Ogmont spotted a gap there. So, it introduced the idea of fractional digital gold,

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  letting people buy gold digitally, starting from as low as rupees, while the company stored equivalent physical gold in secure third-party vaults. It even offered features like buying gold with a small down payment and paying the rest in installments. And, the idea clicked. India has always had an obsession with gold, and if owning it became as easy as tapping a button, people were more than happy to jump in. Soon after, MMTCPAMP, a joint venture between government-owned MMTC Limited and Swiss refiner MKSPAMP, emerged as another major player. It was and still is India's largest gold refiner and eventually became the biggest custodian of digital gold in the country.

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  It then partnered with companies like Motilal Oswal, Paytm and PhonePe for wider distribution. And for these platforms, the tie-up was a win-win for two big reasons. First, around 2017, the RBI tightened rules for wallets. If a company wanted to run a wallet like Paytm Wallet, they had to follow strict KYC norms and regulatory requirements. Digital gold, however, didn't fall under any wallet regulations. And because jewellery purchases under 2 lakh rupees didn't require KYC under PMLA, that's Prevention of Money Laundering Act rules, apps realised that they could let users buy small amounts of digital gold without paperwork.

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  And once users held that gold balance inside the app, it helped these platforms retain some of the business they were losing from people who didn't want to open wallets because of the stricter KYC rules. Second, digital gold became a great onboarding tool. Once customers were buying gold on the app, platforms could nudge them to exploring other financial products. That's how players like HDFC Securities, UpStox and Groh also began offering digital gold. And that gave digital gold serious momentum. People could invest tiny amounts, set up SIPs and treat it almost like a savings product. By 2021, stockbrokers were estimated to account for 10 to 12% of the roughly 5,000 crore rupees worth of digital gold sold in India annually.

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  And since nearly 85% of customers never requested physical delivery, it created an uncomfortable possibility. If a platform wasn't maintaining sufficient gold reserves, redemptions could be funded using money from new buyers. Not that digital gold is a Ponzi scheme, but without mandated audits, the risk of such a situation going unnoticed was very real. And you could say that this was the moment regulators finally realised how big the problem had become. It was too late to step in with fresh rules or rather impossible. No regulator actually had the authority to oversee digital gold in the first place, simply because of how it was classified as we explained at the start. So, SEBI did the only thing that it could do.

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  It told its regulated intermediaries, stockbrokers and later even registered investment advisors to stop offering or recommending digital gold to customers. So, in hindsight, you see that digital gold was never officially allowed, but no regulator could ban it either. And when something sits in that grey zone, it's technically legal by default. Platforms capitalize on that ambiguity. It became a bit like those gold purchase schemes your neighborhood dweller offers. Unregulated, based on trust and meant for people who plan to buy gold later. If anything goes wrong, all you have is the protection of ordinary company and consumer laws. And that's exactly how digital gold managed to grow as big as a 13,800 crore rupees market today.

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  But now, SEBI has made its concerns clearer. If something goes wrong with digital gold, it has no legal authority to step in and protect investors. So, what does that mean for you, you ask? Well, first things first, if you've invested in digital gold, don't panic. Many analysts suggest that investors gradually shift to SEBI regulated gold ETFs or EGRs, that's electronic gold receipts. EGRs are slightly different from ETFs in the sense they're receipts traded on the stock exchange that represent physical gold stored in the vault and they can eventually be redeemed for actual gold. They also tend to become more cost efficient because with digital gold, you usually pay a higher price to cover storage, insurance and platform margins, plus a 3% GST on your purchase, which means that even if gold prices rise by say 2% the next day,

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  you could still end up selling at a loss because of these embedded costs. So, yes, if you already hold digital gold, you could either take delivery, sell and shift the money to regulated options or simply leave your existing holdings untouched if you trust the platform, at your own discretion and risk that is, and start any fresh investments through ETFs or EGRs instead. Because a mass panic exit is the quickest way to make a worry turn real and we definitely don't want that. I'll see you in the next one. Thank you for listening to today's episode. And if you want to share your feedback or suggestions, do drop us an email to [email protected]. Until next time.