Gold sale

SEBI and NSE Report Digital Gold Sale May Impact Groww and Upstox

NSE urged all members to stop selling digital gold on their platform by September 10

SEBI had previously characterized sales of digital gold as a violation of the Securities Contracts (Regulation) Rules (SCCR), 1957

This move is likely to put the brakes on the digital gold market that was set to expand in the upcoming holiday season.

New problems for fintech platforms that engage or facilitate the purchase of digital gold, as the National Stock Exchange (NSE) in its circular ordered all members, including brokers and wealth managers, to block selling digital gold on their platforms by September 10. The announcement came shortly after market regulator SEBI called sales of digital gold a violation of the Securities Contracts (Regulation) Rules (SCCR), 1957.

Newly transformed unicorns such as Mumbai-based Groww, Upstoxx, Paytm Money as well as traditional brokers such as Motilal Oswal and HDFC Securities which are regulated by SEBI have been urged to stop their digital gold trading by September 10, according to a HEY report. Motilal Oswal’s Kishore Narne told the Daily that the company is honoring SEBI’s order to refrain from digital gold products to SEBI-regulated entities. He further added that customers already holding virtual gold will not be affected by the move. The alleged use of clients’ money to purchase digital gold could be the possible reason for SEBI’s concerns about the sale of virtual gold.

Digital gold is a virtual way to invest in gold metal without worrying about the cost of storage and the quality of the gold. Digital gold further allows a person to invest at least INR 100 and own a fraction of virtual gold which is not possible in physical gold sold in grams or karats.

In India, Augmont Gold Ltd, MMTC-PAMP India and Digital Gold India mainly offer virtual gold to its customers. They are stored securely in high security safes at no cost with insurance. Fintech startups nationwide ideally collaborate with these companies to enable users to invest in virtual gold. Digital Gold is also known to provide easy cash thus helping those in trouble to get cash in a short period of time. This restriction is likely to put the brakes on the digital gold market which was expected to develop in the coming holiday season when Indians prefer to buy gold as a sign of prosperity and good luck.

However, it should be noted that the circular adopted by NSE is only applicable to its members. Apps like Google Pay and PhonePe that help users invest in virtual gold will not be affected by the new regulations. Deepak Abbot of Indiagold, a startup that offers gold lending, has hinted that SEBI’s move could possibly be an indication of regulation in the digital gold market. While people buying physical gold in jewelry stores still dominate the market, in recent years the virtual gold market has seen a growth in demand. According to World Gold Council, India traded 4-5 tons of digital gold in 2019 with 25 lakh investors.

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