Smart Way of Investing in Gold

In our last article (Invest in Gold the smart way) we emphasised on the importance of gold in one’s portfolio and did a comparison between physical gold Vs. Gold ETFs Vs. Gold Mining Funds, and assessed the smart way of investing in Gold. In this article we would be evaluating whether investing in gold through "E-Gold" is prudent or not.

 

"E-Gold" is a unique investment product launched by the National Spot Exchange Limited (NSEL) first time in the history of Indian commodities market. The product enables you to buy gold in an electronic form on the National Spot Exchanges’ trading platform and the gold bought by you will reflect in your demat account.

 

Taking into account the secular uptrend in gold which may pinch your pocket (while buying), E-Gold allows you to buy gold in smaller denomination such as 1, 2, 3...grams. The transacting pattern of this product is similar to the cash segment of the equity markets, where the E-Gold bought by you will be settled on a T+2 basis (i.e. Trading day + 2 days). Meaning if you buy E-Gold today, the same will reflected (credited) in your demat account 2 days from the date of purchase. Similarly, if you have sold today, the same will reflected (debited) in your demat account 2 days from the date of sale.

 

However, in order to transact in E-Gold, one requires to open a demat account with any of the Depository Participants (DPs) empanelled with NSEL. And such DPs are Global Capitals, Religare, Karvy, Goldmine, IL&FS, Monarch Capital, SMC and SSD securities.

 

One may ask -

 

Can I surrender these units to the exchange, and get physical delivery of gold whenever required? The answer is - yes, you can surrender your E-Gold units to the exchange, and obtain physical delivery of gold in the form of gold bars / coins, but initially delivery will be made available to if you are located in Mumbai, Ahmadabad or Delhi (later NSEL intends to increase the number of centres in the future to offer physical delivery).

 

And the other advantages?

 

Well there are host of other benefits, which are:

 

• Convenience in transacting: E-Gold provides you seamless transacting. You simply have to call your broker and place your order to transact (buy or sell) in the product, and your demat account too will reflect the transaction (buy or sell) done. You can transact during the long trading hours of NSEL, which are from 10:00 am till 11:30 pm.


• Liquidity: E-Gold provides you, with the requisite liquidity as you can sell any number of units (subject to the existing units held by you), at anytime during the trading hours of the exchange. Moreover, while selling your E-Gold, you won’t encounter some terrible experiences like the ones you face while selling physical gold (typically while selling physical gold, the jeweller will deduct making charges (the charge that is added while buying gold). As regards banks, they refuse to buyback gold).


• Cost effective: E-Gold enables you to transact in gold, by incurring minimal cost (Rs 0.60 per unit per month, which is the annual maintenance cost of your demat account, plus some marginal (generally 0.50%) brokerage charged by your broker. Hence, by opting for this instrument for gold investments, you save onto the holding cost, which you otherwise pay steep while stacking physical gold in your bank locker.


• No risk of theft: E-Gold eliminates the risk of theft of your precious yellow, as the NSEL acts as the custodian of your gold.


• Quality: You can be rest assured that the quality of your gold will never be compromised, because as per the Securities and Exchange Board of India (SEBI) regulations, the purity of underlying gold should be 0.995 fineness and above.


• Premium: We are sure that you must have encountered the horrendous experience of the gold vendor charging a premium at the time of your purchase of physical gold. However, this does not happen in E-Gold as transactions take place at the prevailing market rates, without paying any premiums. Hence, the pricing in the product is transparent.

 

At a glance

(Source: NSEL website, PersonalFN Research)

 

Our View:

In our opinion, E-Gold as product is another smart way of investing (like Gold ETFs) in gold, for the benefits which it offers. And mind you this is not a derivative (futures) contract, as your betting on the precious yellow metal in the spot market.

 

We recommend investors not to trade (for the liquidity) in this safe haven, instead approach gold as insurance policy as it safeguards you during uncertain economic conditions. Keep allocating at least 5% - 10%, of your total investible amount to gold and stay invested for 10 - 20 years.

Investors are requested to consult their tax planner before investing in E-GOLD and to know more about tax implications.

 

Want to do a financial plan for yourself, or

Want to know more about or invest in mutual funds, insurance, fixed income instruments

 

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Comments
kaushalarun31@yahoo.com Feb 23, 2011 Is it worth to buy gold and sell it through e gold electronically as i had asked my friend (gold-merchant) he insisted on the buying gold from the shop not from e gold as per him this is also a business propaganda. I also think he says right because the egold price is far more than the price of mcx gold suggest me about this.
Dr.soniachopra77@gmail.com Feb 23, 2019 I want to get e gold
compagnieonyrie@yahoo.fr Jan 19, 2012 Ya learn something new everyday. It's true I guess!

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