What does Sebi's ban on sale of digital gold via stock brokers means for investors?
The electronic form of gold has gained a lot of popularity among investors of late as it is a more affordable form of holding gold.
Soon you may not be able to invest in digital gold via your stock broker, as National Stock Exchange (NSE) has instructed its members, stockbrokers and wealth managers to taper off the sale of digital gold on their platforms by 10th of September.
The move was following directive from the Capital Regulator, Securities and Exchange Board of India (SEBI). The reason behind this move is that digital gold does not come under the purview of SEBI. The capital market regulated does not have any regulations around digital gold and therefore SEBI does not want entities regulated by it to sell digital gold.
In its letter, on August 3, 2021, SEBI had informed NSE that the said activity is in contravention of Securities Contracts (Regulation) Rules (SCRR), 1957, and therefore the members should refrain from undertaking these activities.
Currently, only three companies have the license to sell digital gold including Augmont Gold, MMTC-PAMP India and another joint venture company between MMTC and a Swiss firm names MKS PAMP while mobile wallets, distributors, investment platforms and even stock brokers are allowed to sell digital gold sold by these firms.
What happens to investors current digital gold holdings?
Investors who already have invested in digital gold via stock brokers have a few options they can look at. One is wherein they can exit their investments and sell their investment and the other is that they can take a physical gold delivery directly from MMTC-PAMP.
Kunal Shah of Nirmal Bang Commodities told Money9, “Investors need not panic as those still continuing to hold their digital gold investments can speak to their brokers regarding this. Most brokers are now getting customers directly in touch with digital gold selling companies as investors’ details are already registered with these companies, so investors won’t lose anything with the new ruling.”
On the other hand, Anuj Gupta, Vice President, Commodities at IIFL Securities said, “Investors looking to buy gold in digital form can explore MCX gold, Gold ETF, Sovereign Gold Bonds and Gold mutual fund from the brokerage house platforms now.”
What is Digital Gold?
The electronic form of gold has gained a lot of popularity among investors of late as it is a more affordable form of holding gold. One can buy digital gold for as low as one rupee.
In this case, when investors buy digital gold, the manufacturers of the product themselves buy physical gold on investors’ behalf. This gold in insured of any loss.
The manufacturer, however, does charge around 3% to the investors as spread between buy and sell rate apart from a GST of 3%.