All that glitters may indeed be gold. But if you are looking to buy digital gold in India, you may want to tread cautiously. The National Stock Exchange has asked all its members to stop the sale of digital gold on their platforms by September 10.
This decision came after the capital markets regulator, the Securities and Exchange Board of India (SEBI), said that the sale of digital gold is in contravention of the Securities Contracts (Regulation) Rules (SCRR) 1957.
What really is ‘digital gold’?
‘Digital gold’ is essentially a fancy term for a mechanism that allows the virtual sale of the yellow metal via an online platform. A customer investing in gold virtually does not have to worry about its quality or purity or for that matter about storage or safe keeping.
To be sure, the gold bought virtually is backed by physical metal, which is delivered at the end of a specified period, if not sold before then, or can be redeemed earlier. The mechanism also allows an investor to buy gold in bite-sized portions, as small as Rs 100, and hold it in fractional quantities, something that is not possible with physical gold.
Which fintech companies allow people to buy or sell digital gold in India?
Several well-known fintech companies allow people to transact in digital gold. Some marquee names include Groww, Upstoxx, Paytm Money, Motilal Oswal, HDFC Securities, Google Pay and PhonePe, to name some prominent ones.
Who actually sells this gold?
While these fintech companies allow consumers to buy gold, they are basically middlemen. The gold is actually sold by three entities—AutmontGoldtech, MMTC-PAMP India, and Digital Gold India. These entities procure and store the physical gold in secure vaults.
So, what is the regulatory hitch?
Digital gold falls in an undefined grey zone when it comes to regulation. This is why SEBI has deemed its sale as being in contravention of the SCRR 1957.
Will all the fintech companies be equally impacted?
Not really. Broking platforms, which come under the umbrella of the NSE and are registered with SEBI, will be impacted, as the bourse’s diktat applies only to them. These include Paytm Money, Groww, Upstoxx, Motilal Oswal and HDFC Securities, just to name a few.
Other, non-broking entities, like Google Pay and PhonePe will not be impacted, at least for now. Moreover, customers holding digital gold don’t have to worry, as their holdings will not be affected.
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As someone deeply immersed in financial markets and regulatory frameworks, it's evident that the recent ban imposed by the National Stock Exchange (NSE) on the sale of digital gold in India has far-reaching implications. This move, prompted by the Securities and Exchange Board of India (SEBI), underscores a regulatory concern regarding the Securities Contracts (Regulation) Rules (SCRR) of 1957.
Let's dissect the key concepts involved:
-
Digital Gold Overview:
- The term 'digital gold' refers to a mechanism enabling the virtual sale of gold through online platforms.
- Investors in digital gold are spared concerns about the physical attributes of gold, such as quality, purity, storage, or safekeeping.
- The virtual gold is backed by physical gold, which can be delivered at the end of a specified period or redeemed earlier.
-
Regulatory Context:
- SEBI, the capital markets regulator, has identified the sale of digital gold as violating the SCRR 1957.
- The SCRR 1957 sets the rules for securities contracts, and the regulatory stance suggests that digital gold falls within an undefined grey zone.
-
Entities Involved:
- Notably, the actual sale of digital gold is facilitated by entities such as AutmontGoldtech, MMTC-PAMP India, and Digital Gold India.
- These entities procure and store physical gold in secure vaults, acting as intermediaries for fintech companies.
-
Fintech Companies Offering Digital Gold:
- Several well-known fintech companies in India enable the buying and selling of digital gold. Prominent names include Groww, Upstoxx, Paytm Money, Motilal Oswal, HDFC Securities, Google Pay, and PhonePe.
-
Impact on Fintech Companies:
- The ban primarily affects broking platforms under the NSE, registered with SEBI. Notable platforms impacted include Paytm Money, Groww, Upstoxx, Motilal Oswal, and HDFC Securities.
- Non-broking entities like Google Pay and PhonePe are currently not impacted, at least for the time being.
- Existing customers holding digital gold are assured that their holdings will not be affected by the ban.
Understanding the nuances of this regulatory development is crucial for investors, especially those engaged with fintech platforms dealing in digital gold. As the landscape evolves, staying informed about such regulatory shifts becomes paramount for anyone navigating the intricacies of the financial markets.
