Sebi asks investment advisers to refrain from dealing in digital gold: What does this mean? —Experts explain
The Securities Exchange Board of India (SEBI) has asked investment advisers to refrain from dealing in digital gold, triggering panic among those who hold the yellow metal in virtual form.
The Securities Exchange Board of India (SEBI) has asked investment advisers to refrain from dealing in digital gold, triggering panic among those who hold the yellow metal in virtual form. The Capital markets regulator's response came after it discovered that many registered investment advisers are engaged in unregulated activity by providing a platform for buying, selling, or dealing in digital gold, an unregulated product.
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Experts from the commodities and currencies arena feel that investors should abstain from indulging in such practices as the market regulator has already warned against it on earlier occasions too. They feel that the investors should rather look for more reassuring investment instruments in the precious metal, such as Sovereign Gold Bond scheme, gold ETFs and gold mutual funds.
What should investors do?
Speaking on recent direction from SEBI, Prathamesh Mallya, AVP- Research, Non-Agri Commodities and Currencies, Angel One Ltd, said that digital gold instruments are not regulated by it, hence the Sebi has warned investment advisers not to ask their clients to invest in digital gold. "In early August 2021, the stock exchanges had warned brokers not to deal in digital gold. Hence, investors should not dabble with digital gold except the SGB as these are issued by the Government of India," said Prathamesh Mallya.
Chirag Mehta, Senior Fund Manager, Alternative Investments, Quantum AMC, is of the view that as digital gold is an unregulated product, hence the comfort and confirmation on the checks and balances related to gold backing, purity, etc remain concerns on the top of investors mind.
Mehta feels that it is an investor-friendly move as in case of any mishappening, there is no regulatory recourse available to retail investors. "SEBI in an investor-friendly move has simply reasserted the Sebi (Investment Advisers) Regulations, 2013 as per which investment advisors are not allowed to deal in unregulated products. Investors should take a cue and take exposure to gold only through regulated avenues like Gold ETFs and Gold Mutual funds to avoid any regulatory surprises in the future. Gold ETFs, in addition to being regulated, also offer 24-karat physical gold backing, lower denominations, and price efficiency," said the Senior Fund Manager of Quantum AMC.
Chirag added that existing digital gold investors can liquidate their holdings on the investment platforms till the time the platforms provide an exit before they heed the regulator's orders. "If they want to hold onto the investment, they have the option of dealing directly with product manufacturers i.e. digital gold companies," he added.
Digital gold has gained popularity as many brokers, investment advisors and wallets have started providing platforms, said Kshitij Purohit, Lead Commodity & Currency at CapitalVia Global Research.
"This ban is only for the Investment Advisers. Currently, there is no ban on the selling of digital gold. Many non-broking companies are providing a platform for their users to buy digital gold, and they will continue to sell it," said Purohit.
He added those investors who invested through non-broking channels can keep their holding in digital gold. For those investors who bought it from SEBI regulated broker or investment advisory, they should change their holding or can contact the manufacturer of the product on or before the deadline, suggests Kshitij.
"There will be no panic as holdings will not be liquidated. An investor can also go for investment in Sovereign Gold Bonds as they give both capital appreciation and interest to the holder," added Kshitij.
What Is the Matter?
Capital markets regulator Sebi on Thursday has asked investment advisers to refrain from dealing in digital gold after realising that some registered investment advisers are engaged in unregulated activity by providing a platform for buying, selling or dealing in unregulated products including digital gold.
"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 the Sebi Act, 1992 read with the Sebi (Investment Advisers) Regulations, 2013," the regulator said in a statement on Thursday.
(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)
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