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India’s securities watchdog warns against investing in unregulated assets

India’s securities watchdog has warned investment advisors against engaging in the buying and selling of unregulated products such as digital gold. It has threatened advisors who offer such products with legal action for violating the country’s exchange laws.

In its press release, the Securities and Exchange Board of India (SEBI) said that it had noticed some investment advisors have continued to offer unregulated assets despite a prior warning.

“Undertaking such unregulated activity including dealing (i.e., advisory, distribution and execution/implementation services) in digital gold is not in accordance with the provisions of the SEBI Act,” it warned.

Digital gold are electronic receipts that prove an investor has invested in the precious metal without getting hold of the actual gold. The sellers get to keep the physical gold on behalf of the investors. It’s similar to investing in a gold exchange-traded fund (ETF), only that ETFs are regulated while digital gold products are not, at least not in India.

SEBI will take the appropriate action on any investment advisor found culpable of these violations, the press release noted.

The regulator has previously warned against the practice, Prathamesh Mallya, a senior executive at Indian stock broker Angel One Limited stated.

“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,” Mallya told Zee Business.

SEBI didn’t mention digital currencies in its warning, despite these assets also falling in the ‘unregulated’ category. The Indian government has hinted on moving towards a blanket ban on Bitcoin, but it has yet to make any substantial steps towards this.

Digital currency adoption in India has surged despite the regulatory ambiguity. Exchanges in the Asian country have reported doubling and in some cases tripling their trading volumes and new users this year.

Just this month, CoinSwitch Kuber exchange became the second digital currency unicorn in India after raising $260 million from Coinbase Ventures and others at a $1.9 billion valuation. CoinDCX had become the first unicorn in August after raising $90 million at a $1.1 billion valuation.

And even as Bitcoin adoption in the country rises, India’s largest online stock brokerage Zerodha has remained adamant that it’s not offering digital currencies any time soon. Co-founder Nithin Kamath commented on SEBI’s latest warning, claiming that such regulatory issues are the reasons his firm doesn’t offer digital currencies, digital gold, or U.S. stocks.

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