Do not purchase digital gold from stockbrokers: Basic Rule

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You won’t be able to buy digital gold from your stock brokers from September 10 since the markets regulator has urged exchanges not to allow brokers to sell this product. This comes as demand for digital gold, particularly among millennials, is increasing as the holiday season approaches.

Although experts advise caution, you can still purchase digital gold using non-broking platforms or wallets, as long as you follow the Reserve Bank of India’s (RBI) standards.

Digital gold sales have been reported by the Securities and Exchange Board of India (SEBI) as a violation of Rule 8 (3) (f) of the Securities Contracts (Regulation) Rules, 1957. Digital gold does not fall within the Securities Contract (Regulations) Rules 1957 definition of a security. From September 10, the National Stock Exchange has advised its members, stockbrokers, and financial managers not to provide digital gold on its platforms.

What exactly is “digital gold”?

Investors purchase digital gold over the internet rather than holding actual gold. Augmont Gold, MMTC-PAMP India (a joint venture between state-run MMTC Ltd and Swiss firm MKS PAMP), and Digital Gold India with its SafeGold brand are three metal trading companies that trade digital gold. For the amount of digital gold sold on stockbroking, non-broking, and metal trading platforms, these trading companies purchase physical gold and store it in a secure vault. Investors can acquire gold online and receive physical delivery in the form of coins or bullion. They can also sell gold purchased digitally to the platform.

There are doubts about whether the certificate produced by the organisations is backed by physical gold because digital gold is not regulated by any regulator. Experts say metal trading firms, on the other hand, keep an equivalent weight of actual gold in their vaults, which is guaranteed by the IDBI trustee. Because of the simplicity of investing through mobile and internet platforms, as well as the cash-back advantages offered by wallets, digital gold has gained popularity among millennials. Because investors were unable to visit jewellery stores during the Covid-induced lockdown, many found it more convenient to invest in metal in electronic form because there are no storage fees.

What are the options for investors?

Individuals who purchased digital gold from brokers have the option of selling it to their brokers or receiving physical delivery. Investors must deal directly with metal trading companies from September 10.

Those who bought gold from stockbrokers need not worry, according to Gautam Kumar, co-founder and head of investments and research at Pennywise, because when they acquire digital gold, they automatically become members of the gold provider/manufacturer. “If you want to save your investments, you’ll have to contact the product’s producer directly after the deadline.

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