Electronic Gold - Why SEBI cautioned investors?

Electronic Gold in India: Features, Investment Mechanics & Trading Explained

Introduction

The Securities and Exchange Board of India (SEBI) recently issued a cautionary note warning investors against buying “digital gold” from unregulated online platforms. While these digital offerings promise easy gold ownership, they fall outside SEBI’s regulatory framework and expose investors to serious counterparty and operational risks.

In contrast, SEBI has introduced regulated electronic gold products — such as Electronic Gold Receipts (EGRs), Gold Exchange Traded Funds (ETFs), and gold commodity derivatives — that allow investors to gain exposure to gold in a transparent, secure, and well-regulated manner.

Let’s explore how electronic gold works , its key features, investment process, and trading mechanism.

What Is Electronic Gold?

Electronic Gold (EGR) is a SEBI-regulated instrument representing ownership of physical gold in electronic form. Each EGR is backed by actual gold stored in secure vaults, making it a transparent and tradable digital equivalent of physical gold.

Introduced under the SEBI (Vault Managers) Regulations, 2021, EGRs bridge the gap between physical and financial gold markets, allowing investors to buy, hold, and trade gold seamlessly through stock exchanges.

Features of Electronic Gold Receipts (EGRs)

Feature	Description
Regulator	SEBI (Securities and Exchange Board of India)
Backing	Fully backed by physical gold stored in SEBI-accredited vaults
Form	Electronic record in demat form
Tradability	Listed and traded on stock exchanges like NSE and BSE
Purity Standard	995 or 999 purity (as per BIS standards)
Convertibility	Can be converted into physical gold through authorized vault managers
Transparency	Real-time price discovery through exchange trading
Taxation	Treated as a financial asset; capital gains tax applicable similar to gold ETFs

Investment Mechanics

Creation of EGRs:

1. Physical gold is deposited in an accredited vault.

2. The vault manager issues an equivalent number of Electronic Gold Receipts to the depositor’s demat account.

Trading on Exchange:

• EGRs can be traded like shares on recognized exchanges.

• Investors can buy or sell EGRs through SEBI-registered brokers.

Conversion into Physical Gold:

• Investors may surrender their EGRs to the vault manager.

• After necessary processing, physical gold of equivalent quantity and purity is delivered.

Storage and Security:

• Vaults are monitored by SEBI and independent agencies.

• Insurance coverage ensures protection against theft or loss.

Trading in Electronic Gold

• Trading in EGRs follows a T+1 settlement cycle, similar to equities.

• Minimum Trading Unit: Typically 1 gram or multiples thereof.

• Price Discovery: Based on prevailing gold market rates.

• Liquidity: As the ecosystem matures, EGRs are expected to offer high liquidity and narrow spreads.

• Transparency: All transactions are executed through SEBI-registered exchanges, ensuring investor protection and audit trails.

  
  

Comparison: Digital Gold vs SEBI-Regulated EGRs

Parameter	Digital Gold	Electronic Gold (EGRs)
Regulator	Unregulated	SEBI
Backing	May or may not be backed by physical gold	Fully backed by physical gold
Trading Platform	Private fintech apps	Recognized stock exchanges
Investor Protection	None	Full SEBI oversight
Convertibility	Platform-dependent	Guaranteed via SEBI-accredited vaults

Why Investors Should Choose SEBI-Regulated Gold Products

• Transparency: Real-time trading and verified purity.

• Safety: Backed by physical gold stored in regulated vaults.

• Liquidity: Easy buying/selling through stock exchanges.

• Tax Benefits: Recognized as a financial asset.

• Regulatory Oversight: SEBI ensures accountability and investor protection.

Final Thoughts

While digital gold may appear convenient, it lacks the legal and regulatory safeguards that protect investors in SEBI-regulated instruments. With the evolution of Electronic Gold Receipts, investors now have a trusted, transparent, and tradable way to invest in gold — combining the reliability of physical gold with the efficiency of financial markets.