Been hearing a lot of advertisements on Paytm Digital Gold on radio in the last few days, possibly because of Akshay Tritiya. I decided to look at their scheme, more closely at their terms and conditions and there seem to be a couple very important questions which need to be addressed.

Question 1. Since a customer can buy digital gold which they can at any time redeem into real gold and have it delivered to them, what is the kind of ratios Paytm / MMTC would be maintaining for this.

E.g, If I buy 1 gram of digital gold, would Paytm instruct MMTC to keep 1 gram of real gold under my account in their vault or would they be keeping just a fraction? Now let’s assume 10,000 people buy 100 KG of digital gold collectively. Would MMTC be keeping 100 KG as deposit or would be be keeping just a % of the deposit.

This question is important because Gold is not an infinite resource, even government and banks long back moved to Fiat currency because they could no longer be able to keep the equivalent stock in gold. This questions becomes even more important when there is an emergency and people want to keep their assets close to them and all of a sudden a lot of people want to convert their digital gold into real gold… would Paytm / MMTC be able to supply the gold on time if at all?

Question 2: The second biggest question would be that if Paytm / MMTC are just keeping a fraction of your digital gold investment in real gold then what are they doing with the remaining money? Is it kept safe in an escrow account or do they have the permission to use it however they like.. e.g advertising a whole lot more to get even more digital gold customers?

Both the above questions are extremely important as this ensures or does not ensure the safety of your investment. Before you invest in such schemes, I would encourage you to read Paytm’s policy and other details.