What is E-Gold?


Conventionally Indians buy gold on all the thinkable occasions, be it Dhanteras, anniversaries, marriage in the family, or receipt of annual bonus. We normally buy gold in physical form, be in the form of coins or bars or jewellery. One can either buy gold in physical form or in electronic form.

‘E-Gold’ introduced by National Spot Exchange Limited (NSEL) (You have read it right! It’s not the National Stock Exchange) offers the ultimate blend of both the forms — physical and electronic.

Is investment in  E-Gold Investment Better Than Other Gold Investments?

The moment you talk about gold, normally people in India restrict themselves to gold ornaments and bullion (gold coins, gold biscuits, gold bars). To invest in these, you had only 2 entities to approach: Either a jeweler or a bank. Now that investors are willing to try novel options, e-gold investments are experiencing a sharp rise. Amongst the e-gold investment options are the gold ETFs, gold futures and the latest, E-Gold.

What is E-Gold?

E-Gold trading is turning out to be an increasingly favored way of investing in gold. Following are some relevant facts about e-Gold:

  • E-Gold is initiated by The National Spot Exchange Limited (NSEL) as part of E-series investment products in commodities which also incorporates e-Silver which enables you to buy gold in electronic form, and hold it in a Demat account.
  • E-Gold units, where 1 unit = 1 gram of physical gold, is bought and sold via the spot exchange just like shares.
  • There is the alternative to invest in small quantities in demat account, the least being 1 gram of e-Gold.
  • There is also the freedom to take physical delivery of gold via the exchange whenever required.
  • It’s preferable over gold jewellery as one does not lose out on any jewellery making costs.
  • One does not require a locker as e-gold is held in demat form, hence it’s 100% safe and has lower holding costs.
  • E-Gold is 99.9% pure gold and you have the option of purchasing more or selling your e-gold at any point of time. So, it’s 100% liquid.

Features/Characteristics of E-Gold:

1. One can purchase and hold minimum of one gram of E-Gold in electronic form.

2. The commission and the transaction costs shall be nearly 0.5%, similar to buying any other ETF from NSE.

3. E-Gold can be converted into physical gold, which is known as “re-materialization” and it involves certain charges. The minimum quantity for converting into physical gold is set as 8 grams.

4. Rematerialisation facility is presently available in 15 major cities and thereby if you wish to convert e gold to physical gold, do check with your broker.

5. VAT: In case one goes for rematerializing, he is required to pay certain rematerialisation charges (Nearly Rs.150 for 8 grams), but the VAT might be a bigger amount depending on how much quantity you hold.

6. The storage charges to hold gold in demat form are Rs.0.60/unit/month.

7. The purity of e-gold is not sanctioned by LBMA and there is no accepted benchmark in domestic gold prices.

8. You may trade in gold ETFs only till 3.30 p.m., whereas e-gold may be traded till 11.30 p.m., thereby providing the investors more opportunities as well as flexibility.

Besides E-Gold, the other commodities existing are E-Silver and E-Copper. As no Silver ETFs are available currently, E-Silver is a better option, if anyone wants to invest in silver. Also, the minimum quantity is set at 100 grams and the transaction charges are similar to that of E-Gold. One can receive the live data from National Spot Exchange.

The concept behind e-gold and gold ETFs is the same: Relieving investors of the anxiety and concerns of storage as well as purity, making gold investment more organised and hassle free. Though E-Gold is a cost-effective for investors with longer investment horizon, investing in gold through ETFs shall be more sensible for small investors.

How does e-Gold function?

As e-Gold can only be bough in electronic form, one must possess a demat account. The existing demat account which you use to transact in shares etc. will not work for holding e-Gold units. One requires distinct demat accounts to trade in commodities and equities. So, you are required to open a separate demat account with one of the depository participant (DP) empanelled with the National Spot Exchange Limited. The list of such depository participants can be downloaded from the web site of National Spot Exchange http://www.nationalspotexchange.com/EmpanelledDPs.pdf. Settlement is done on (T+2) basis.  One is entitled to take physical delivery of gold by giving up the required units to the exchange. At present, there are 3 delivery centers of gold in India- Mumbai, Delhi and Ahmedabad.

Trading in e-Gold may be done from Monday to Friday between 10 am to 11.30 pm.

One can buy e gold by making a phone call to the broker member with whom they have created their client account or via online trading access made available to them by the broker member, during the business hours mentioned above.

Pros & Cons of Investing in E-GOLD

Pros of Investing in E-GOLDCons of Investing in E-GOLD
Buying/Selling in small denominations (1 gram, 2 gram of gold).Custody charges 60 paisa per unit per month.
Transaction reflects in your demat account.There is no personal feeling of holding the gold in hand as DP holds it on our behalf.
Gold rates on NSEL are based on Indian market rates.Hacking of accounts is sometimes an issue leading to the security part.
Transparency in pricing and seamless trading is key advantages of trading in e-product.
No Holding/Storage Costs.
E-gold gives better returns as compared to ETFs, since fund houses charge some additional costs. NSEL charges 0.4% while it is 2.5% for ETFs.
Easy liquidity as you can sell it off whenever required.

Benefits of e-Gold

  • As NSEL functions on a pan India basis, the price quoted for e-Gold is same throughout India. This eradicates the price bias owing to different geographies. The e-Gold units possess dual character of physical assets as well as financial assets and may be liquidated just like your shares. So one has liquidity at his will.
  • When it comes to e-Gold units, the difference between the net sale price (SP) and purchase cost is very low, approximately Rs. 10/gram whereas the same difference in case of physical gold is pretty high. This confirms higher returns if the e-Gold units are bought and held as investment. In addition, as the gold is held in electronic form, one is able to save on locker charges and is not required to be concerned about burglary and robbery of the gold.
  • If you happen to buy physical gold, you will be given physical gold that is duly certified; hence taking care of purity concerns.
  • As the price that is quoted is transparent, it guarantees effective price discovery for purchase and sale, whereas this is not observed when one holds gold in physical form. In addition, it isn’t that simple to sell your physical gold as is the case with E-Gold, which is possible simply by a click.
  • E-Gold has transformed a physical asset into a financial asset. Hence with e-Gold one may very easily apply the concept of assets allocation and rebalance your portfolio at regular intervals among different asset class like equity, debt and bullion because transaction costs are meager.
  • E-Gold also provides one the option to collect gold over a long period for social obligation in very minute quantities at extremely economical prices.

Costs involved

The buying of e-Gold has certain repercussions with regards to transaction cost. The broker shall charge brokerage for purchase/sale of the e-Gold units (similar to brokerage charged on purchase/sale of shares) which ranges between 0.25-0.50%. Moreover, broker will recover transaction cost at Rs 20/lakh, which is charged by the exchange.

Besides transaction costs, you have to pay your depository participant, where one has opened their demat account, the annual maintenance charges of nearly Rs 300 p.a. Initially, the exchange used to charge to recover the costs of storing the Gold in safe deposit vaults but it has been discontinued. You are permitted to trade in the e-Gold units during the day but you need to make sure that all the outstanding position by the day-end must result in either delivery or payment. The delivery/payment mechanism with regards to e-Gold is akin to that of stock exchanges. In the event of short delivery etc. there is an auction mechanism, just the way it is conducted in BSE and NSE.

Conversion of e-Gold into physical gold

Each unit of e-Gold released by the exchange is backed by an equal amount of gold in its vaults. One may anytime request their bank to offer him with currency notes equivalent to the amount lying in his bank account, similarly, one is also entitled to request the exchange to provide them with physical gold equivalent to the no. of e gold units lying in their demat accounts.

In order to convert your electronic gold units into physical gold, you must surrender the electronic units and apply for physical gold. One has the choice to take the delivery of the physical gold at any place where NSEL has delivery centers. At present, the exchange has delivery centers in Mumbai, Delhi, and Ahmedabad. The exchange, at present, provides the choice to exchange your e-Gold units into coins/bars of 8, 10, 100 gram and 1 kg and any combination thereof. It charges an amount of Rs. 200 each for conversion of 8 gram/10 gram coins. In case of 100 gram coins, conversion charges levied for making and packing is Rs. 100.

For one-kg bar, the exchange doesn’t charge anything. In addition to these charges, one is required to pay VAT @ 1% throughout the country as well as Octroi charges to convert electronic units into physical coins. Octroi pertinent in Mumbai is 0.1 %. For each case of delivery, you are required to pay Rs. 200 for delivery charges, regardless of the quantity of the delivery desired. The depository shall even charge you Rs. 50 on each such request.

As Rs. 250 is the fixed charge for every single request for physical delivery of gold, it is wise to let the units amass and to take delivery in economic lots. Do make a note that these charges will be levied only when the physical delivery is taken. If the e-Gold units are unloaded in electronic form, these charges will not apply.

Tax treatment

The e-Gold units shall be treated as Gold for tax purposes. The units must be held for more than 36 months to avail the concessional in tax on long term capital gains and to be eligible for exemption under Section 54 F/54 EC of the Income Tax Act, 1956. You are even required to pay wealth tax on the market value of the electronic units that lie in your account as on March 31 of each year, in case the total value of your taxable wealth along with market value of e-Gold goes beyond Rs. 30 lakh.

I am certain that, e-Gold in due course will succeed in transforming the way in which people invest in gold for the long term and hold their gold.

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