How Safe Is Your Digital Gold? SEBI’s Warning and the Silver Loan Surge

What is digital gold, and how does it work? , Major fintech players offering Digital Gold, History of Digital Gold, Digital Gold: Current Trends and Regulatory Warnings, The Appeal and Hazards of Digital Gold, Loans Against Silver: Emerging Trends and Investor Implications, Market Outlook and Risk Management for Investors. 

What is Digital Gold and how does it work?

Digital gold has recently come under scrutiny following a cautionary advisory from SEBI urging investors to exercise prudence before engaging with this asset class. The regulatory body highlighted a significant concern: digital gold remains outside the purview of established financial regulators, such as SEBI or the Reserve Bank of India, leaving investors without the statutory protections that govern other investment vehicles.

Essentially, digital gold offers a contemporary method of purchasing gold through digital platforms. Investors can acquire fractional ownership of 24-carat, 999-purity gold bullion using convenient mobile applications such as Paytm, Google Pay, PhonePe, and InCred Money, often facilitated by UPI transactions. These holdings are stored securely in designated vaults by the service providers on behalf of the investor. Furthermore, digital gold can be accessed round the clock and redeemed into physical gold upon demand.

While digital gold democratises gold investment by allowing seamless micro-purchases that align with everyday saving habits, it lacks the regulatory safeguards provided by instruments like gold ETFs or Sovereign Gold Bonds. Moreover, just as with physical gold purchases, the acquisition of digital gold attracts Goods and Services Tax at the point of purchase.

Some major fintech players providing digital gold and their vault partners

Fintech PlayerVault Partner(s)SafeGoldOwns and operates insured digital gold vaults; partners with Axis Bank, PhonePe, Amazon Pay, Bajaj Finserv Markets, Tanishq, Caratlane, KalyanPhonePeSafeGold, MMTC-PAMPPaytmMMTC-PAMPDigiGoldBrink’s vaultsTanishqSafeGoldAugmontAugmont’s own vaulting and refining setupDineroMMTC-PAMP

History Of Digital Gold

Digital gold has quietly evolved over the past decade into a significant segment of India’s precious metals market. As early as 2012, Augmont, a well-known name in refining and retailing precious metals, pioneered the concept of fractional digital gold in India. This innovation allowed investors to buy gold starting from as little as one rupee, with the assurance that equivalent physical gold was securely stored in third-party vaults. Augmont even introduced convenient features like purchasing gold on a small down payment basis with the option to pay the balance in instalments. This model offered an accessible alternative to traditional gold investments, especially for small investors who found owning gold ETFs challenging due to the necessity of a demat account and capital gains tax implications on ETF sales.

Shortly thereafter, MMTC-PAMP, a joint venture between the government-owned MMTC Ltd. and Swiss refiner MKS PAMP, emerged as a dominant custodian of digital gold in India. Leveraging its status as the country’s largest gold refiner, MMTC-PAMP formed strategic partnerships with platforms such as Motilal Oswal, Paytm, and PhonePe to broaden digital gold’s reach. By 2021, stockbrokers were credited with driving 10-12% of the estimated Rs 5,000 crore annual digital gold sales in India, a testament to its growing acceptance and appeal.

For fintech and brokerage platforms, digital gold proved to be a mutually beneficial product, offering a seamless entry point for digital savings and investment. This growth trajectory, however, unfolded in a largely unregulated space, prompting caution from market regulators about investor protection. In sum, digital gold’s journey reflects both the evolving investment preferences in India and the challenges inherent in balancing innovation with regulatory oversight.

Digital Gold: Current Trends and Regulatory Warnings

Digital gold prices are tied to live bullion rates, and most platforms sell 24-carat, 999-purity metal. When an investor invests Rs 100, 3% goes towards GST and around 2-3% towards the distribution fee markup, which is shared between the distributor and the gold custodian. Markup can vary from platform to platform, which is why the price of digital gold fluctuates on different fintech platforms at any given time and is higher than the prevailing rates in the gold spot market. That markup covers the platform’s distribution costs, UPI and payment gateway fees, vaulting, insurance, and other operational overheads. 

Jewellers and industry bodies have been alive to these consumer shifts. For jewellers, such as Tanishq, Jos Alukkas, and CaratLane, digital gold is a way to stay connected with customers beyond showroom visits. Moreover, the UPI transactions in digital gold rose from approximately 50.9 million in January 2025, with a value of Rs 761.6 crore, to nearly 99.8 million in August 2025, when the total value increased to Rs 1,183.7 crore.

Recently, on November 8, 2025, SEBI released a cautionary note: “Digital gold products are different from SEBI-regulated gold products, as they are neither notified as securities nor regulated as commodity derivatives. They operate entirely outside the purview of SEBI. Such digital gold products may entail significant risks for investors and may expose investors to counterparty and operational risks. Investors/participants are made aware that none of the investor protection mechanisms under securities market purview shall be available for investments in such Digital Gold/E-Gold products.

SEBI regulates gold products like exchange-traded commodity derivative contracts, Gold Exchange  Traded  Funds  (ETFs)  offered by  mutual funds, and Electronic  Gold  Receipts (EGRs) tradeable on stock exchanges. Investments in these SEBI-regulated gold products can be made through SEBI-registered intermediaries and are governed by the regulatory framework prescribed by SEBI. 

The Appeal and Hazards of Digital Gold

Digital gold’s appeal is unmistakable: no making or wastage charges, assured purity of 24-carat (99.99%) gold, secure storage in insured vaults, fractional ownership, and round-the-clock availability through apps. Investors can buy small amounts starting from as little as Rs 1 or Rs 10 on SIPs, all without needing a demat account, enabling systematic accumulation and instant redemption as coins or bars.

However, the very attributes that make digital gold attractive also expose inherent risks. The sector remains lightly regulated, unlike gold ETFs or mutual funds overseen by SEBI or sovereign gold bonds regulated by RBI. This regulatory void raises significant concerns regarding investor protection and dispute resolution. While some jewellers and fintech platforms store digital gold in their own vaults, it is prudent for investors to prefer platforms that provide custody through trusted third-party entities. The presence of unregulated or loosely governed players signals a red flag.

In the event a distributor or platform fails, investor recourse hinges on how title and custody are structured. Reputable entities like SafeGold, MMTC-PAMP, and Augmont provide custody receipts backed by physical gold allocation, ensuring investor ownership even if the front-end distributor collapses. Platforms lacking transparent allocation records or independent audits pose considerably higher counterparty risks.

Unlike SEBI-regulated Gold ETFs or Electronic Gold Receipts (EGRs), which undergo verification and audited storage, digital gold platforms operate largely on trust. There are no uniform rules mandating proof that the gold actually exists or is securely stored. This lack of regulatory oversight creates possible counterparty and operational risks, where platforms might fail to deliver or redeem gold as promised.

Investors need to weigh convenience against these risks carefully, recognizing that the digital gold market in India currently operates in a regulatory grey zone.​ If desired, a fuller discussion on safer, regulated gold investment alternatives, such as gold ETFs and EGRs, can be provided.

Loans Against Silver: Emerging Trends and Investor Implications

The Reserve Bank of India (RBI) has introduced new guidelines under the “Reserve Bank of India (Lending Against Gold and Silver Collateral) Directions, 2025,” effective from April 1, 2026, designed to simplify access to loans against silver alongside gold. This policy allows commercial banks, including small finance and regional rural banks, urban and rural cooperative banks, non-banking financial companies (NBFCs), and housing finance companies to provide loans against gold and silver kept in the form of jewellery or coins only.

Notably, loans will not be sanctioned against bullion such as pure gold or silver ingots, nor against financial instruments linked to these metals like gold ETFs or mutual funds. The RBI has placed clear limits on how much jewellery or coins can be pledged: up to 1 kilogram for gold jewellery, 10 kilograms for silver jewellery, 50 grams for gold coins, and 500 grams for silver coins.

Regarding the loan-to-value (LTV) ratio, the RBI has stipulated a tiered structure: up to 85% for loans below Rs 2.5 lakh, 80% for loans between Rs 2.5 lakh and Rs 5 lakh, and 75% for loans exceeding Rs 5 lakh. For instance, a silver holding valued at Rs 1 lakh would qualify for a loan of up to Rs 85,000.

In determining the metal’s market value, lending institutions must consider either the average closing price over the preceding 30 days or the previous day’s closing price, whichever is lower, based on rates published by the India Bullion and Jewellers Association (IBJA) or recognised commodity exchanges. The appraisal excludes the value of any stones or additional metals embedded in the jewellery.

This comprehensive regulatory framework aims to enhance transparency, borrowers’ protection, and financial inclusion by integrating silver loans into mainstream credit access in India.

Market Outlook and Risk Management for Investors

Experts strongly advise taking SEBI’s warning about digital gold seriously. Existing holders of digital gold should consider transitioning to safer, regulated alternatives such as Gold ETFs offered by mutual funds, Electronic Gold Receipts (EGRs) that trade on stock exchanges, and Sovereign Gold Bonds. Prospective investors should diligently review third-party audit reports, verify that vault custodians have proper certifications, and prefer providers that openly disclose their audit schedules and frequency.

Investor vigilance is crucial around key risks, foremost being platform integrity and custody reliability. Since different fintech players may use various vault partners, confirming the identity of the metal holder and the availability of independent third-party audit disclosures is essential. Entities like MMTC-PAMP, SafeGold, and Augmont have established reputations for strong custody and audit protocols. Beyond custody, investors must scrutinize transaction processes and redemption policies, as platforms vary in minimum gold delivery weights, applicable fees, and options to redeem gold as jewellery at partner outlets.

In conclusion, while digital gold offers a valuable technological bridge to traditional gold investment, navigating this space requires a cautious approach and informed decision-making on the part of investors.

Written By Adhvaitha Nayani BA

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