Zerodha founder and CEO Nitin Kamath has thrown his weight behind market regulator Securities and Exchange Board of India’s (Sebi) warning on digital gold last week. Kamath called it a timely reminder by the securities watchdog and explained how investors get hurt when they decide to buy them.

Kamath said digital gold is an inefficient way to invest in the precious metal, as buyers lose about 6% upfront — 3% in GST and another 2-3% due to price spreads — before accounting for additional regulatory risks.

“Digital gold is unregulated. A timely reminder from SEBI. Most people don’t realize that nobody regulates digital gold, and if something were to happen to the platform or the companies selling it, there’s not much you can do,” he said in a tweet on Wednesday.

“It’s also a subpar way to get exposure to gold. You pay 3% GST when you buy. Then there’s a spread of another 2-3%, which means you’re down about 6% as soon as you buy digital gold, and that’s before considering the regulatory risk,” Kamath continued.

Since the government has stopped issuing sovereign gold bonds (SGB), he recommends investing in gold ETFs, calling them the safest way to get exposure to gold.

“Now that Sovereign Gold Bonds (SGBs) have taken off, gold ETFs are one of the safest and easiest ways to gain exposure to gold. We’ve written about all this at @zerodhamarkets,” said the founder and CEO.

On Saturday, Sebi warned investors against digital or online platforms offering gold products, as they pose significant risks to investors and expose them to counterparty or operational risks.

“It has come to SEBI’s attention that some digital/online platforms are offering investors to invest in ‘digital gold/e-gold products’. Digital gold is being marketed as an alternative to investing in physical gold. In this regard, it is hereby informed that such digital gold products are different from SEBI-regulated gold products as they are neither denominated as securities nor act as regulated products other than pure commodities. SEBI’s purview,” the regulator said in a media release.

Read more: SEBI warns investors against unregulated platforms offering digital gold products

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