Unregulated digital gold’s return risk: You lose 6% the moment you buy, explains Zerodha’s Nithin Kamath

Zerodha founder and CEO Nithin Kamath has put his weight behind market regulator Securities and Exchange Board of India’s (Sebi) last week’s warning on digital gold. Kamath called it a timely reminder by the securities watchdog and explained how investors suffer a loss the moment they decide to buy it.

Kamath said that digital gold is an inefficient way to invest in the precious metal, as buyers lose around 6% upfront — 3% in GST and another 2–3% due to price spreads — even before accounting for the added regulatory risks.

“Digital gold is unregulated. A timely reminder from SEBI. Most people don’t realize that nobody regulates digital gold, and if something were to happen to the platforms or companies selling it, there’s not much you can do,” he said in a tweet on Wednesday.

“It’s also a subpar way to get exposure to gold. You pay 3% GST the moment you buy. Then there are spreads of another 2–3%, which means as soon as you purchase digital gold, you’re already down about 6%, and that’s before even factoring in regulatory risk,” Kamath said further.

As the government has stopped issuing Sovereign Gold Bonds (SGB), he recommends investments in Gold ETFs, calling it the safest way to take exposure to gold.

“Now that Sovereign Gold Bonds (SGBs) have stopped, gold ETFs remain one of the safest and easiest ways to get exposure to gold. We wrote about all this on @zerodhamarkets,” the founder & CEO said.

On Saturday, Sebi warned investors against digital or online platforms offering gold products, as they possess significant risks for investors and may expose them to counterparty or operational risks.

“It has come to the notice of Sebi that some digital/online platforms are offering investors to invest in ‘Digital Gold/E-Gold Products’. Digital Gold is being marketed as an alternative for investment in physical gold. In this context, it is informed that such digital gold products are different from Sebi-regulated gold products as they are neither notified as securities nor regulated as commodity derivatives. They operate entirely outside the purview of Sebi,” the regulator said in a media release.

Read more: Sebi warns investors against unregulated platforms offering digital gold products

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