Gold investors have fewer options this festive season as mutual funds have temporarily suspended fresh investments in their gold and gold-silver exchange-traded fund (ETF) fund of funds (FoFs), following a regulatory nudge from the Securities and Exchange Board of India (Sebi).
For those looking to invest in gold without buying physical metal, digital gold is an alternative. Available through apps such as Google Pay, PhonePe, Paytm and Gullak, it allows purchases starting at Re 1. But investors should understand the costs and risks before taking the plunge.
What is digital gold?
Digital gold allows you to buy 24-carat gold online in any amount. The seller is supposed to buy an equivalent quantity of physical gold and store it in an insured vault on your behalf. The app is merely the storefront, while the gold is largely supplied by three firms -- MMTC-PAMP, a joint venture between state-run MMTC and Swiss refiner PAMP; SafeGold, operated by Digital Gold India; and Augmont.
Investors can buy gold by value or weight, sell it back to the provider, gift it to another user or convert it into coins and bars delivered home.
The product has gained traction. Digital gold purchases over UPI peaked at Rs 3,926 crore in January 2026, according to National Payments Corporation of India data. In March, transactions reached a record 254 million, worth Rs 3,172 crore. In the last one year to September 2026, digital gold worth Rs 30,757 crore were bought through UPI apps.
What are the hidden costs?
Digital gold has no making charges, but investors pay 3% GST on every purchase, which is not refunded on sale. The buying price also includes handling and processing charges, creating a gap between buying and selling prices. This spread typically ranges from 2.5% to 5%, depending on the provider and platform.
Storage may be free initially but could attract charges later. Converting digital gold into coins or bars involves additional minting and delivery costs.
How is it taxed?
Digital gold is taxed like physical gold. Gains on sales within 24 months are added to taxable income and taxed at the applicable slab rate. Longer-held investments attract 12.5% long-term capital gains tax without indexation, plus cess.
Gold ETFs held for more than 12 months qualify for long-term capital gains taxation at 12.5%, while gold FoFs follow the 24-month holding period.
Is digital gold safe?
The biggest concern is regulation. In November 2025, Sebi cautioned investors that digital gold is neither a notified security nor a regulated commodity derivative. It operates outside the regulator’s purview, leaving investors exposed to counterparty and operational risks without the investor-protection mechanisms available for regulated securities. The RBI regulates UPI payments, not the underlying gold product.
Investors therefore depend on providers’ vaulting, auditing and trustee arrangements. A platform failure or dispute could leave them with limited recourse.
An industry self-regulatory body, the Digital Precious Metals Assurance Council of India, has been set up by leading providers. The finance ministry is also consulting regulators on a possible framework requiring every unit sold to be backed by audited physical gold, according to media reports. However, no such framework has been notified yet.
Until regulatory safeguards are in place, investors should weigh digital gold’s convenience against its costs and lack of formal investor protection. Regulated gold ETFs may offer a more transparent alternative for those seeking exposure to gold without holding the metal physically.