The capital market regulator, the Securities and Exchange Board of India (Sebi), has barred Sebi-registered investment advisors (RIAs) from dealing in any unregulated products. This effectively means RIAs can’t deal in products such as cryptocurrencies, digital gold and other products that do not come under the regulatory ambit.
Read on to know what this means for investors and whether they should invest in digital gold.
Sebi’s Directive
“It has come to the notice of Sebi that some registered Investment Advisers are engaged in unregulated activity by providing a platform for buying/ selling/ dealing in unregulated products including digital gold,” says the notification issued on October 21.
Sebi has specifically mentioned in the ruling that any activity in dealing with digital gold is not in accordance with SEBI Act 1992. “Undertaking such unregulated activity including dealing (i.e., advisory, distribution and execution/ implementation services) in digital gold by Investment Advisers is not in accordance with the provisions of Section 12(1) of the SEBI Act, 1992 read with the SEBI (Investment Advisers) Regulations, 2013,” it says.
The current directive could be seen as an extension of others issued to the stock exchanges in August. A letter, dated August 3, informed the exchanges that certain members are providing a platform to their clients for buying and selling digital gold. “The said activity is in contravention of Securities Contracts (Regulation) Rules (SCRR), 1957, and the members should refrain from undertaking any such activities,” said the earlier directive. Post that, the stock exchanges directed their members, including stockbrokers, to discontinue the sale of digital gold on their platforms by September 10.
How Will This Affect Investors?
Digital gold caught the fancy of young investors recently as the ticket size of the investment is as low as Rs 100.
Some of the brokers, who are also registered as investment advisors, especially new-age fintech platforms, were offering digital gold. However, following the new directive, you can’t buy or sell digital gold from your investment advisory platform.
If you are already invested with such platforms, you don’t need to worry as most of them are in the process of making alternative arrangements with their channel partners to deal with the situation. For instance, Paytm money announced recently, “In light of the recent SEBI (Securities and Exchange Board of India) guidance, Digital Gold will now be available on Paytm app only. You can view your holdings, buy or sell at your convenience via the Paytm app starting September 10, 2021. But, we would like to assure you that this does not impact your Paytm Gold holdings in any way.”
Upstox made a similar announcement. “If you wish to hold on to your Digital Gold and sell it after 5th September 2021, you can do so from Augmont, our Digital Gold Partner. You can also buy more Digital Gold from them,” it said in a statement.
What Should You Do?
Investing in digital gold is risky as it is not issued by any regulated entity. Also, it is difficult to check whether the certificate issued for the investment is backed by physical gold or not. Moreover, in case of any fraud, it’s not clear who the investor can approach.
Gold exchange-traded funds (ETFs) may be a much better option as they offer a cost-efficient and secure way to access the gold market. They intend to offer investors a means of participating in the gold bullion market without taking physical delivery of gold and to buy and sell their holdings on the stock market. You can also buy a smaller quantity of gold through gold ETFs to accumulate the metal at different price levels with relative ease and comfort.
