In Indian homes, gold has always occupied a special place. People buy it for weddings, festivals, wealth preservation, and increasingly, as an investment.
Investors now have multiple options to own or invest in gold without buying jewellery. While physical coins and bars continue to be a popular choice for gold investing, alternatives like Gold ETFs (exchange-traded funds), Sovereign Gold Bonds (SGBs), digital gold, and Electronic Gold Receipts (EGRs) have emerged in recent years.
Now, another option is beginning to attract attention: tokenised gold.
Its proponents describe it as the next evolution of gold investing. But is tokenised gold a genuine innovation, or does it introduce risks that many investors may not fully understand?
What is tokenised gold, and how does it work?
“Tokenised gold refers to blockchain-based digital tokens, where physical gold stored in secure vaults (can be international) is represented digitally, allowing investors to buy, sell, or hold gold without owning physical bars,” explains Arjun Guha Thakurta, Executive Director, Anand Rathi Wealth.
The concept combines the appeal of gold with the technology behind blockchain.
Instead of purchasing a gold coin or ETF unit, investors buy digital gold tokens linked to a specific quantity of physical gold. These tokens can often be traded in very small denominations, making gold ownership more accessible.
The proposition sounds attractive.
But unlike Gold ETFs and EGRs, tokenised gold currently operates without a dedicated regulatory framework in India. So, before investing, it is important to understand how tokenised gold differs from more established gold investment products.
Tokenised gold vs gold ETF, EGR, digital gold, and physical gold: Which is better?
At first glance, all gold investment products seem to offer the same thing: exposure to gold prices. However, the structure of these products can significantly influence costs, taxation, liquidity, and investor protection.
Gold ETFs remain the preferred choice for many investors, says Thakurta. “They are the most liquid and trade actively in the secondary market. Long-term capital gains (>12 months) are taxed at 12.5%.”
“EGRs can be traded on exchanges, and custody is regulated, but liquidity might be an issue due to low trading volumes. Digital gold is easy to buy in small quantities, but investors usually pay a 2-5% buy-sell spread along with 3% GST (goods and services tax) at the time of purchase. Physical gold involves making charges that can range from 8-25%, depending on the product,” he adds.
Tokenised gold, by contrast, offers features that traditional products generally do not. Investors can trade at any time of the day rather than only during market hours, and they can purchase extremely small fractions of gold. However, those advantages come with trade-offs.
“The main drawback is that blockchain-based tokens are not regulated in India and are taxed as virtual digital assets (VDAs) at a flat 30% on gains, with no long-term capital gains benefit,” says Thakurta.
Additionally, a 1% TDS applies on transfer consideration with an effective minimum rate of 31.2% inclusive of cess, if structured on a blockchain and classified as a virtual digital asset (VDA), says Prithviraj Kothari, President, India Bullion and Jewellers Association (IBJA).
As a result, investors need to look beyond convenience and evaluate the broader implications of regulation, taxation, and investor protection.
Tokenised gold: How legal regulations work in India
While tokenised gold is not prohibited in India, it also does not operate under a dedicated regulatory framework.
Investors are effectively placing their trust in three separate entities: the issuer creating the tokens, the custodian holding the physical gold, and the platform facilitating transactions, according to Thakurta.
“If any dispute arises, investors do not have any protection framework, as there is a regulated market,” he says.
SEBI has clarified that digital gold products are neither notified as securities nor regulated as commodity derivatives. This places much of the due-diligence responsibility directly on investors, says Kothari.
That distinction is important because regulation influences everything from disclosure standards and custody arrangements to grievance redressal and investor protection.
How can investors verify that the gold backing the tokens actually exists?
One of the strongest marketing claims made by tokenised gold platforms is transparency.
Blockchain technology can provide a clear record of token ownership and transactions. Investors can often see how many tokens are outstanding and compare that with reported gold reserves. However, blockchain has limitations.
While blockchain can verify the digital ownership record, it cannot independently verify whether the physical gold actually exists in the vault, nor can it confirm whether that gold has been pledged elsewhere or whether reserve disclosures are accurate, points out Thakurta.
Those checks continue to depend on traditional mechanisms, such as custodians, auditors, and independent verification.
“For Indian platforms, confirm that the vault custodian is named, independent, and specialises in bullion storage—a vague ‘we store your gold safely’ without a named third party is insufficient. Check for named independent security trustee insurance certificates naming the investor as beneficiary, BIS hallmarking compliance for physical redemption, and transparency of bid-ask spreads versus live MCX prices,” suggests Kothari.
In other words, blockchain may improve transparency, but it does not eliminate the need for trust.
What happens if the tokenised gold platform shuts down?
The answer underscores a crucial difference between tokenised gold and traditional investment products.
When investors buy a Gold ETF, they operate within a regulated ecosystem involving fund houses, custodians and exchanges. Tokenised gold introduces additional layers of dependency.
Investors are not just relying on the blockchain. They are also relying on the issuer, the custodian, and the trading platform. If any one of these entities experiences operational, legal, or financial difficulties, investors may encounter challenges in accessing their holdings, according to Thakurta.
The risks become more complex if the gold is stored in overseas vaults. In such cases, any dispute could potentially involve foreign legal systems and insolvency proceedings.
“If the custodian behind a token fails, the token can become worthless regardless of what the blockchain records,” warns Thakurta.
This is one reason many wealth managers continue to prefer regulated gold products for core portfolio allocations.
Can Indian investors redeem tokenised gold for physical gold?
One feature that attracts many investors is the ability to convert digital holdings into physical gold.
“Most platforms allow redemption from 0.5-1 gram, with coins available in 0.5g to 10g and bars from 10g upward,” says Kothari.
However, redemption is not always as simple or as cost-effective as it appears.
“Charges include 3% GST, minting fees, logistics, and insurance costs,” he adds.
There may also be KYC requirements and operational conditions that vary from one platform to another.
Investors should carefully understand the redemption process before assuming they can easily convert tokens into physical gold whenever they choose.
Who should consider investing in tokenised gold?
Despite the risks, tokenised gold may be suitable for all investors.
Kothari believes it may appeal to digitally savvy investors who value fractional ownership and around-the-clock trading.
However, he cautions against treating it as a core portfolio holding.
“Given India’s regulatory vacuum, financial experts recommend keeping exposure below 5% of total portfolio, with core gold allocations directed toward regulated SGBs or Gold ETFs,” he advises.
For most investors, tokenised gold may be best viewed as an experimental or satellite investment rather than a primary gold investment vehicle.
Risks and red flags investors should watch before buying tokenised gold
Before investing, experts say investors should examine the platform with the same scrutiny they would apply to any financial product.
“Avoid platforms promising guaranteed returns, claiming false SEBI/RBI approvals, or lacking named independent custodians and proof-of-reserve audits,” warns Kothari.
Unverifiable regulatory claims and opaque pricing versus MCX rates are immediate exit signals, he adds.
The rise of tokenised assets has created new opportunities, but it has also created new avenues for fraud. In an environment where investor protections remain limited, due diligence becomes even more important.
