Tag: digital gold

What you need to know before investing in digital gold, BFSI News, ET BFSI

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People have been investing in gold for ages, and the yellow metal is considered a safer investment option than, say, debt and equity. Now, unlike in the past, there are other options to invest in gold, and this article is about one that is fast becoming popular — digital gold. But before you proceed further a disclaimer: digital gold does not come under the purview of any financial sector regulator; it’s a regulatory grey zone.

What is digital gold
Like the term suggests, ‘digital gold’ is an online product which enables you to hold gold virtually without owning a safe or bank locker. The seller keeps an equivalent weight of physical gold in a secure vault for each online buy. There are no minimum purchase limits, so you can buy for as less as Rs 100.

Where you can buy
Digital gold service providers like Gpay, Phonepe and broking firms like Paytm Money, HDFC Securities, Motilal Oswal, etc allow investors to buy gold in small amounts to incrementally build gold holdings. Buyers can sell or convert it to physical gold – like coins and ingots – whenever they want.

Digital gold providers
In India, gold is offered and stored in vaults mainly by three companies
a) Augmont Goldtech
b) MMTC-PAMP India, which is a joint venture between the government-owned Metals and Minerals Trading Corporation of India (MMTC) and Swiss company MKS PAMP
c) Digital Gold India, with its SafeGold brand.

Regulation on digital gold
Digital gold falls in a regulatory grey zone as the sector presently does not come under the purview of any financial sector regulator and is said to have a self-regulatory audit and diligence mechanism. ET has reported that the National Stock Exchange (NSE) instructed its members, including stockbrokers and wealth managers, to wind down the sale of digital gold on their platforms by September 10. This came after markets regulator Sebi flagged such sales as a breach of the Securities Contracts (Regulation) Rules (SCRR), 1957.

How Sebi order impacts investors
New-age fintech brokers such as Upstox, Groww, Paytm Money as well as traditional brokers such as HDFC Securities and Motilal Oswal etc will be affected by the new ruling. Brokers cannot now offer such unregulated products through their Sebi-registered entity or platform. These companies have been given time till September 10 to discontinue the product and inform customers.

Non-broking platforms such as PhonePe and Google Pay, which also offer digital gold to customers, are not likely to be affected by the new ruling. Customers already holding digital gold would also not be impacted.

Advantages of digital gold
Storage: You don’t have to pay bank locker rent, insurance cover or additional investment of Fixed Deposit (FD). Sellers say the digital gold is stored in an insured, secured vault at no extra cost.

Investment convenience: You can start with even Rs 100, and build up your holding over time. Investment in physical gold requires a lot of money.

Uniform price: The price of physical gold varies from city to city and jeweller to jeweller while digital gold prices are the same across the country. Physical gold carries high making charges; digital gold has just the 3% GST.

Purity: Sellers point out that digital gold investment is made in certified 24 Karat, 999.9 pure gold. Ascertaining purity of physical gold attracts additional cost.

Sell or Redeem: Digital gold can be sold or redeemed at the click of a button. You can sell the digital gold instantly and the value of your gold is instantly transferred into the bank account through a 24×7 market-linked rate. If you want to redeem your holding, the physical gold will be delivered at your doorstep.

Instant liquidity: You can sell digital gold instantly, while physical gold can only be exchanged or sold through a jeweller, or sometimes several jewellers.

Collateral: Digital gold can also be used as collateral for taking loans.



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NSE directs its members to stop sale of digital gold by Sept 10, BFSI News, ET BFSI

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New Delhi: National Stock Exchange (NSE) has directed its members, including stockbrokers, to discontinue the sale of digital gold on their platforms by September 10. The direction came after capital markets regulator Sebi said that certain members are providing a platform to their clients for buying and selling digital gold.

Securities and Exchange Board of India (Sebi), through a letter dated August 3, informed the exchange that the said activity is in contravention of Securities Contracts (Regulation) Rules (SCRR), 1957, and the members should refrain from undertaking any such activities.

The SCRR rules restrict all members from engaging, either as principal or employee, in any business, other than that of securities or commodity derivatives, except as a broker or agent, not involving any personal financial liability.

Accordingly, NSE directed members not to carry out such activity and comply with the regulatory requirements at all times.

“Members, currently engaging in the activity, shall cease to undertake all activities in this regard, within one month from the date of this circular during which necessary communications, regarding the discontinuation, shall be made to the respective clients,” NSE said in a circular dated August 10.

TradeSmart Chairman Vijay Singhania said digital gold units are not issued by any regulated entity. There is no method to check whether the digital gold certificate is backed with physical gold or not.

Some jeweller firms like Titan and banks were known for selling digital gold.

Digital gold does not come under the definition of securities as defined in the Securities Contract (Regulations) Act 1956.

“The circular prohibits the dealing/offering digital gold-selling via Sebi registered entities, as it is not a security as mentioned above. It may be continued to be sold by the unregulated entities, subject to RBI directions if any,” Singhania said.

Kishore Narne, Head of Commodities & Currencies, Motilal Oswal Financial Services, said, “We were distributors of the digital gold product of MMTC-PAMP, with the backdrop of exchange issuing the directives for such product to be not sold by all stockbrokers of the stock exchange; we shall be discontinuing distribution of this product”.

According to him, MMTC-PAMP will continue to be the owner of the product and retain all the holdings of gold on behalf of clients and shall be offering all the redemption and sell-back options for all the existing clients.



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Groww, Upstox, Motilal Oswal to be hit by Sebi’s latest rules on digital gold sale, BFSI News, ET BFSI

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The National Stock Exchange (NSE) has instructed all members, including stockbrokers and wealth managers, to wind down the sale of digital gold on their platforms by September 10.

This came after capital markets regulator, the Securities and Exchange Board of India (Sebi), flagged such sales as a breach of the Securities Contracts (Regulation) Rules (SCRR), 1957.

The move, ahead of the crucial festive season months when Indian consumers typically become active purchasers, has hit the country’s nascent yet burgeoning digital gold industry.

Investors are worried over its future as well as its legitimacy in the eyes of financial sector regulators, Sebi as well as the Reserve Bank of India.

Sebi’s concerns may have stemmed from potential use of client funds by brokers to buy digital gold which it views as a non-broking business, according to a review of documents and discussions with multiple industry sources.

The lack of regulatory oversight on companies that sell and store physical gold corresponding to the virtual assets being allocated to the end-consumer, is also cause for concern.

“…It has, however, come to the notice of SEBI/Exchange that certain members are providing a platform to their clients for buying and selling of digital gold. SEBI vide a letter dated August 3 has informed the Exchange that the said activity is in contravention of Rule 8 (3) (f) of SCRR, and members should refrain from undertaking any such activities,” a circular issued by NSE on August 10 showed.

According to a source, similar notices have been issued by all leading exchanges in India in recent weeks. ET could not independently verify this.

New age fintech brokers such as Upstox, Groww, Paytm Money as well as traditional brokers such as HDFC Securities and Motilal Oswal offer customers an option to “invest” in digital gold.

These companies have been given time till September 10 to discontinue the product as well as inform consumers about the move, as per the circular, which ET has reviewed.

Uptsox, Groww, NSE and Sebi did not respond to ET’s emails. Spokespersons for Paytm Money and HDFC Securities declined to comment.

The sale of digital gold in India, although a new concept, is “nothing but facilitating the purchase and sale of physical gold through a digital medium, and the ability to hold it digitally,” said Kishore Narne, head of commodities and currencies at Motilal Oswal.

“We understand Sebi’s concerns as it doesn’t fall under its scope of regulation, they have asked all Sebi-regulated entities to refrain from offering such products, and we are honouring it,” Narne said, adding that customers already holding digital gold would not be impacted by the new rules.

The NSE move comes as a jolt to fintech startups that have been building business models around facilitating purchase and sale of gold virtually in partnership with metal and gold firms – Augmont Gold Ltd, MMTC-PAMP India and Digital Gold India.

The business model involves customers being allowed to buy gold for as low as one rupee, as a digital asset. The gold companies then store an equivalent amount of gold in their lockers – against a virtual certificate of purchase.

These companies, though not under the purview of any financial sector regulator, are said to have a self-regulatory audit and diligence mechanism.

The NSE circular is only applicable to members of the NSE, said Renisha Chainani, Head of Research, Augmont Gold.

“This circular has been issued pursuant to some clarifications put by the regulator, Sebi, on NSE members for offering digital gold. All such partners shall work within the framework and guidelines prescribed by Sebi from time to time,” said Chainani.

MMTC and Digital Gold India did not comment.

Non-broking platforms such as PhonePe and Google Pay among others also offer digital gold to customers and are unlikely to be affected by this development.

India’s digital gold market is worth about Rs 5,000 crore annually, according to industry insiders.

The number of users with over Rs 100 balance in digital gold could be in the range of 5-6 million, said Deepak Abbot, the cofounder of Indiagold, a gold loan fintech.

“This could be an early indication that the regulator is looking to come up with regulations for the industry. Currently, these transactions are not under the purview of either Sebi or RBI,” said Abbot.

A senior stock exchange official told ET that brokers cannot offer such unregulated products through their Sebi-registered entity or platform.

“All the listed products are settlement guaranteed and carry a different risk profile. If an investor loses money due to such digital gold, neither the regulator nor the exchanges can be held responsible,” the executive said. “Hence, our action is limited to the extent that you cannot use Sebi-licensed platforms to sell such products.”

A leading securities lawyer who represents the interests of several brokerages said digital gold typically falls in a regulatory grey zone currently and unless Sebi comes out with a set of regulations, brokers cannot sell the products.

“The problem seems to be that some of the fintech players offer digital gold on the same page right next to where they sell mutual funds or listed shares,” the lawyer said. “However, there is no bar on these fintech firms to create a separate legal entity and set up a different page to sell digital gold.”



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Convenience drives millennials to invest in digital gold, BFSI News, ET BFSI

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– By Shashank Singhal

Gold is considered ‘God’s Money’ in India and has been a store of value for over 3000 years. For many investors, allocation to Gold has always been seen as a secure investment option as it may work as an inflation hedge, bears significantly less risk than Indian Stock, diversifies a portfolio, and has high intrinsic value.

Amidst the pandemic when people are hesitant to visit jewellery shops, gold dealers and deal with the downsides of buying gold physically like storage, checking purity, acquiring the gold digitally and online has come as a perfect solution for investors. Digital gold allows the investors to hold physical gold while taking advantage of cutting-edge technology that avoids the hassles of inspecting physical gold for purity and then figuring out a safe storage.

Accounting for roughly 34% of the total population, India has one of the largest millennial populations in the world. Millennials were found investing in the yellow metal more than ever before. Digital gold is gaining traction not only from big cities but also from tier 2 and 3 cities. Terence Lucien, Head of Mutual Funds & Gold, PhonePe said that they have managed to attract customers from 18,500+ pin codes (covering almost 99% of the entire country’s pin codes).

Why are Fintechs tapping it?

As a result of the pandemic, people have learned the value of investing. Gold has traditionally been an important part of every Indian’s investment portfolio. Over the last few years, customers have been increasingly opting for digital gold purchases.

Ashraf Rizvi, Founder & CEO, Digital Swiss Gold & Gilded said, “Gold has and will continue to be part of an Indian investor’s portfolio, and given that gold buying continues throughout the year, digital gold provides convenience that benefits both the customer as well as the provider. Further, the guarantee of purity, safety, and easy reselling of digital gold is driving its demand among customers. As a result, many fintechs are including digital gold in their product portfolio to engage with a new-class of digitally savvy investors.”

Leading stock broker Upstox also offers digital gold as one of its products, Ravi Kumar, Co-founder & CEO at Upstox believes millennial investors have been quite instrumental in spurring investments because of the easy access and safety offered in this mode.

Tier 2 & 3 Cities Driving Growth

There has been an uptick in digital gold demand over the last few months, Terence says, the weight of gold sold by PhonePe in the first few months of 2021 is over 250% of the gold sold during the same period in 2020. He adds “Our customers for Gold belong to various income segments ranging from those who save and accumulate gold by buying small amounts to those with large purchases worth INR 1 lakh per month. Customers now regularly buy gold throughout the year and increase their purchases, during festivals or special occasions such as birthdays, marriages, anniversaries etc. We have seen significant and broad-based adoption of Gold since our launch. Almost 60% of customers who buy Gold on our platform come from Tier 3 cities and beyond.”

Upstox has also witnessed similar trends, Ravi adds, “We have seen 14X growth between December 2020 and May 2021. More than 75% of orders for digital gold are from Tier 2 and Tier 3 towns.”

Partnership Model

Ashraf Rizvi believes that when it comes to digital gold offerings, trust is an important factor, both for the buyer and the provider. Digital Gold providers can partner financial marketplaces and personal finance advisors to offer digital gold as an investment option to their existing client base. FinTech Super Apps is another way for digital gold companies to promote their services.

Ravi from Upstox says while onboarding partners we consider attributes like 24*7 access, transparency, purity of gold and security.

PhonePe has partnered with SafeGold and MMTC-PAMP. Both SafeGold & MMTC-PAMP products (gold coins/bars) are certified for purity by assay certifying agencies. Terence said, “Customers can continue to buy more gold and expand their gold portfolio/savings to fulfil their financial goals, sell it at any time and have their money put into their bank account, and request delivery of gold coins and bars to their doorstep.”

Future Trends

As a commodity gold appeals to both serious investors and traditional buyers. The yellow metal holds sentimental value and is considered to be a lucrative asset in the long run. Terence said, “PhonePe believes that millions of Indians will prefer buying gold digitally due to the high level of trust, convenience, and affordability.”

With respect to partnership trends, Ashraf believes with the overall banking and financial services industry in India undergoing digitisation, personal finance, including gold investment platforms, will also pick-up pace to meet the demands of the new age customer.

Ravi adds that technology has played a significant role in increasing the adoption of this emerging investment instrument and the investment in digital gold will be on an upward trajectory in the coming years.



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Why investing via wallets in gold is fraught with risks

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Are you in a rush to buy gold, given the breathtaking rally of the metal? It is understandable that as an investor hunting for returns, you don’t want to miss the bus. In this article, we make compare different modes of digital investment in gold based on safety and returns.

There are broadly three ways to invest in gold digitally — buying through mobile wallet companies such as Paytm, PhonePe or GooglePay or through digital platforms of players such as Motilal Oswal and HDFC securities; buying through mutual funds via listed gold exchange-traded funds (ETFs); and buying sovereign gold bonds (SGBs) of the RBI.

Gold ETFs

Gold ETFs are safe and transparent instruments. There are many checks and balances in place to ensure that the investor is not cheated.

For every unit of the instrument you buy, there is physical gold bought by the AMC (asset management company) and this is checked by a SEBI-registered custodian (for most gold ETFs, it is Deutsche Bank).

The presence of a custodian in gold ETFs of mutual funds, besides a trustee, adds a layer of safety for investors.

The custodian is responsible for safekeeping of gold, and is obliged to keep a check on gold holdings’ net inflows and outflows.

 

Further, in the case of gold ETFs, all gold is stored with an independent vaulting agency — mostly, Brink’s India — where records are maintained on a daily basis for bar number, purity certificate, gold movement, etc.

Also, unlike issuers of digital gold, the MFs issuing gold ETFs are required to give periodic disclosures on fund holdings through a fact sheet at the end of every month to SEBI. Also, there is auditing of the gold-holding of the MF by internal as we all as SEBI auditors.

Charges: For an investor, gold ETFs may work out cheaper than digital gold of mobile wallets. Investors can buy and sell gold ETFs without GST. However, note that there is a fund management cost and brokerage.

Sovereign gold bonds

SGBs score the highest on safety among the digital gold investments.

It is issued by the Reserve Bank of India (in denominations of one gram of gold and in multiples thereof) and comes with sovereign guarantee. It is available in demat form.

Further, there is an added benefit of 2.5 per cent per annum interest, that boosts returns for the investor.

Also, if you hold it till maturity, that is, eight years, there is no tax on the capital gains from gold price increase. The bonds is issued and redeemed at the market price of gold.

Charges: There is no extra cost on SGBs but for what you pay the broker (or other intermediaries) to buy the bond.

There is discount available for investors buying online at the time of the primary issue by the RBI.

Digital platforms

MMTC-PAMP — a joint venture between MMTC, a Government of India company that is into gold trading, and PAMP, a Switzerland-based gold refiner — sells gold as coins/bars in different denominations through retail outlets and also digitally. You can buy the gold of MMTC-PAMP through players including Paytm, PhonePe, Google Pay, or through stock brokers such as HDFC securities or Motilal Oswal, digitally. While the purity of gold of MMTC-PAMP is assured (it is LBMA ( London Bullion Market Association)-certified for 999.9 purity), the lack of regulation in the space poses a risk.

There is no watchdog governing this space, like the Securities Exchange Board of India that governs gold ETFs or the Reserve Bank of India that oversees sovereign gold bonds.

In September 2019, there was news of the Central government considering closing of some operations of MMTC.

MMTC-PAMP tried to calm the nerves of its investors by saying that MMTC was only a minority shareholder in the entity and that the joint venture will continue unaffected by the government’s decision.

It added that IDBI Security is its trustee and that customers’ gold is safe with it.

But this may have to be taken with a pinch of salt as there is no regulator and there is no independent auditing of the holdings.

For people wanting to buy physical gold digitally, another option is using SafeGold, which is offered through mobile wallets, including PhonePe. Again, this is an unregulated entity and risks are the same as investing through MMTC-PAMP.

Besides, the gold you buy here is a tad lower in purity — 995 fineness against 999.9 offi MMTC-PAMP gold.

The point in which SafeGold scores is that it stores gold in Brink’s India vaults unlike MMTC-PAMP, which keeps customers’ precious metal in its own vaults.

Note that while the digital platforms allow you to sell the gold in your account without having to redeem it physically, you cannot sell gold on the same day you buy it.

Also, there is a 2-3 per cent difference between the buy and sell prices because of the charges levied by the distributor/gold-issuer. Further, with MMTC-PAMP, you can keep gold only for five years, and with SafeGold, it is two years from the date of purchase.

Charges: The cost of buying gold through the digital platforms is higher. For instance, on August 12, the rate on Paytm for buying 1 gram of 24k gold was ₹5,423.32, while gold ETFs were quoting at ₹5,193/gram (the LBMA spot price). Besides, note that each time you buy/sell gold via digital platforms, you will be charged 3 per cent GST.

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