The rapid advancement of financial technology has introduced innovative investment avenues, among which digital gold has emerged as a modern alternative to traditional gold investment. Digital gold platforms enable investors to buy, sell, and store gold electronically with enhanced convenience, accessibility, and liquidity. This study examines the impact of digital gold investment on portfolio diversification among urban investors in Chennai, with a particular focus on the mediating role of investment allocation strategy. A quantitative research design was adopted, and primary data was collected from 300 respondents using a structured questionnaire. Statistical analysis was conducted using SPSS, including descriptive statistics, reliability analysis, correlation, regression, ANOVA, and Chi-square tests. The findings reveal that investment accessibility, liquidity perception, risk perception, and return expectations significantly influence investment allocation strategy. Among these, investment accessibility and liquidity perception emerged as the strongest predictors. The results further indicate that investment allocation strategy has a significant positive impact on portfolio diversification, confirming its critical role in portfolio management. The study validates a full mediation model, suggesting that digital gold investment factors influence portfolio diversification indirectly through allocation decisions rather than having a direct effect. The study contributes to the literature by integrating modern portfolio theory with FinTech-driven investment behavior and provides practical insights for investors, financial institutions, and policymakers to enhance diversification strategies using digital investment platforms