FinTechDigital Gold Investments via Fintech Applications

Introduction

In the Indian financial ecosystem, the trend of investing has been growing at a staggering pace. One of the major reasons for this growth is how simple the process of investing has become nowadays. The rapid adoption of digital technologies and fintech innovations has fueled the growth rate. The new form of investment appeals to people who rely on traditional ways of investing and to those who welcome the reduced hassles of digital platforms. Initially, digital investing was focused on financial markets, but due to technological advancements diversification has been made possible, making it attractive for a wide spectrum of investors.

Traditional Investment Options

Indians, in general, have the trait to diversify and minimize their investment risk. Traditional investment methods like Public Provident Fund (hereinafter referred to as “PPF“), Fixed Deposits (hereinafter referred to as “FD“), and Mutual Funds have always remained the epicenter of investment. Similarly, physical gold holds a special value because of cultural acceptance and price stability as it acts as a hedge against the growing inflation and is available at minimal risk. Real Estate has also been the primary choice of investors as it is relatively stable and provides great returns in the longer run as compared to investments made in other avenues. These instruments are governed by well-established legal frameworks, and protection mechanisms are robust. However, the major difficulty related to conventional investments is liquidity. These investments are not liquid and hence, to cash them, vigorous efforts have to be made.

Diversified Investment Avenues due to FinTech Evolution

The market trend shows that the Indian investors are welcoming the concept of Cryptocurrencies and Digital Gold purchased through government bonds or other means available. Although, Cryptocurrencies are not recognized as a legal tender in India but people can still buy, hold, invest and trade in such currencies and are classified as Virtual Digital Asset (hereinafter referred to as “VDA’s“) under the Income Tax Act, 1961 (hereinafter referred to as the “Act“). In fact, India has been leading the Global Crypto Adoption Index for 2 years straight now.

A new digital form of investing is also emerging for investment opportunities in the Real Estate sector in the form of Real Estate Investment Trust (hereinafter referred to as “REIT“) which enables investors to own fractional ownership of real estate projects, but it also comes with its guidelines and regulations under Securities and Exchange Board of India (hereinafter referred to as “SEBI“).

Similarly, the concept of Digital Golds allows investors to buy 24-Karat gold that would be bought by a third party on their behalf and would be stored in a safe locker. Such lockers are insured as well to prevent the loss of the investors. When the physical gold is compared to digital gold, the most beneficial thing is the liquidity and no minimum amount requirement for investment, enabling owners to have fractional ownership.

Digital Gold Schemes: How it works and its reliance upon third-party security

Digital Gold is a modern investment opportunity that allows individuals to purchase and store gold in online vaults without physically holding it. This would also mean that the monthly rent of bank lockers would not be required. This eliminates the security and storage concerns of the buyers while offering real-time pricing and liquidity. The value of Digital Gold is directly affected by the market price of physical gold.

Digital Gold investors have the freedom to invest as per their comfort and pocket-friendly way rather than investing a hefty amount at once which helps in making better financial decisions if the rates fluctuate in the future. Initially, even digital gold bonds have never been accepted as collateral; RBI’s (hereinafter referred to as the “RBI“) Lending Against Gold and Silver Collateral Directions, 2025 restrict loans to jewellery, select coins, and Sovereign Gold Bonds only.

Each unit of Digital Gold purchase is backed by real and physical gold stored in security, so it should be managed by the RBI and under the ambit of SEBI. As the gold is backed by physical gold, it should be managed by the RBI, but being sold online, it should be under the ambit of SEBI. Another issue comes out as digital gold stands for electronic ownership of any commodity, hence it could not be considered as a “security” under the Securities Control Regulation Act, 1956 (hereinafter referred to as “SCRA“).

The risk of purity of gold is completely eliminated as the value paid would be for the purest form of gold, and it would be the obligation of the service provider to ensure and maintain the standards of the gold. Buying digital gold have become so easy that it could be bought by using GooglePay, Paytm, or PhonePe but these applications do not sell the gold directly rather connects the investors to companies like Augmongt, SafeGold, and MMTC-PAMP. Another real-time benefit of buying digital gold is to track the daily profit and loss on the devices rather than putting extra efforts to check the price in newspapers or news.

Regulatory Framework

Unlike equity or mutual funds that are regulated by SEBI, digital gold currently operates in the legal grey area in India. Generally, it is governed under the terms of service and contractual agreement between the service provider and the consumer. As a practice, the companies involved in digital gold scheme register themselves with the Bureau of Indian Standards (hereinafter referred to as “BIS“), an agency which certifies the mandatory requirements for retail and consumer products ,and operate under the Gold Trading Guidelines, but none of the above provides for investor protection.

Taxation on digital gold, like others, is based on short-term and long-term capital gains with the timeframe of 3 years to determine the slab. Short-term capital gains would be applied if sold before 3 years and long-term capital gains if sold after holding for 3 years. GST would also be attracted if the digital gold is being converted into a physical commodity and being delivered to the consumer.

Roadblocks for investors

1. Investors Trust: People having interest to buy and invest in digital golds have no option other than to trust the third-party vaults and safety systems as they remain unknown and no direct control over the asset is provided.
2. Regulatory drawbacks: Absence of a regulatory legislation or authority makes it dubious for the investors to solely rely upon the platform having the technology and no grievance redressal system in place if the platform or security vault handler fails. The only redressal available would be to file a suit under Civil Procedural Code, 1908 (hereinafter referred to as “CPC“).
3. Dependency on FinTech platform: Investors would have to depend completely on the FinTech service provider, and if the terms of service are altered or the services is stopped due to some reasons, it may leave the investors with no way to find a solution to access their holdings electronically.
4. Hidden Charges: The charges related to the storage of the physical gold and the management of the same might diminish the returns in the longer run.
5. Lack of Awareness: The Digital era might be growing rapidly but awareness about different aspects does not spread that easily, people not knowing about such opportunities might stay in the dark and still rely on conventional methods.
6. Technical failures: High volume of digital transactions lead to glitches in the server which might end up leading to losses and untraceable transactions. Such technical errors discourage the modern investment ways.
7. No loan facility: People have the option to put their gold as a collateral against the loan but investing in digital gold would not be eligible to get a gold loan against it.

AMLEGALS Remarks

Digital gold investments via fintech apps offer a compelling blend of tradition and technology, making gold accessible, flexible, and convenient for a new generation of investors. However, the lack of comprehensive regulation in India means that investors must exercise caution, choose reputable platforms, and stay informed about potential risks and charges. As the regulatory landscape matures, digital gold could become a mainstream investment avenue, but until then, due diligence and financial literacy remain paramount.

~Team AMLEGALS (Assisted by Akshat Sharma)

For any queries or feedback, feel free to reach out to laksha.bhavnani@amlegals.com or hiteashi.desai@amlegals.com