Most of you might be familiar with Gold ETF as an alternate source to investment in physical gold. But, how many of us are aware about the concept of ‘e-Gold’ (electronic gold) which houses equivalent physical gold maintained in exchange designated vault?
Difference between Gold ETF and E-Gold
The basic difference being Gold ETF is an exchange traded mutual fund scheme; whereas e-Gold is physical gold held in dematerialized form which can be traded electronically at National Spot Exchange Ltd (NSEL), in India.
While the main motive of Gold ETF is to track closely the spot prices of the precious yellow metal, it does not necessarily hold physical gold stock at its fullest. On the other hand, e-Gold is a digital gold currency that allows you to trade or even redeem physical gold from your demat account.
Now, that we have learned the differentiation between both the products, let’s carry on with a new distinct advantage of e-Gold.
Soon, E-Gold can be exchanged for Jewellery
NSEL had launched e-Series products in 2010. Though, e-Gold was launched way back in March, it is only now that the investors have fancied investing in such instruments over other sources of trading in, or owning, such products. E-Gold recorded the highest daily turnover of Rs.230 crore on January 19.
In latest development, retail investors can soon exchange their e-Gold units issued by NSEL with selected jewellery outlets, in the form of jewellery, across the country. The Financial technologies-promoted NSEL will empanel around 10,000 jewellers across the country to promote this pioneering e-Gold scheme by March.
The scheme entails an investor to buy e-Gold units from NSEL’s national level electronic spot trading platform and redeem them for physical delivery of jewellery, from transparent jewellers equipped with hallmarking facility, against the surrender of demat units.
Benefits of trading in E-Gold
- Convenience to trade and transparency in price.
- ETFs as fund houses charge for AMCs; e-Gold is digital gold currency.
- E-Gold can be redeemed for physical gold, unlike Gold ETFs.
- In future, e-Gold can be converted into jewellery; unlike Gold ETFs.
- E-Gold is tradable for longer hours than Gold ETFs.
- E-Gold are spot rates of gold, Gold ETFs intends to mirror gold prices.
In a country like India, where people still prefer to buy gold coins from the local jewellers and trading through electronic platforms still constituting a very small part of overall trading volumes; it is hard to realize that the digital gold currency will ever replace the traditional method of buying gold in physical form.
Will this initiative of converting e-Gold into jewellery succeed?
E gold is like a boon to investors who want to invest in gold, specially with the benefits it passes on to the consumers are numerous- no storage costs/worries, transparent pricing, redemption allowed, etc. and many more. I think its time that Indians will change their style of investing : From physical gold to E gold to avail its benefits!
Hi,
I do agree with some of the points being discussed on this article. Traditional investors would always like to hold physical gold instead of Gold ETF / eGold. It is all about being materialistic when you are investing. There are many options to invest in Gold these days. Most of the options are nicely documented in http://insight.banyanfa.com/?p=540 with Pros & Cons. My personal view is to go for ETFs – secure, purity, taxability, etc – a best solution from all angles.
Regards
BFA
@ Deepak , yes you need to have a separate demat account to buy e gold. You cannot use the same demat account that you use for trading in stocks. The list of such depository participants can be downloaded from the web site of National Spot Exchange http://www.nationalspotexchange.com/EmpanelledDPs.pdf.
E gold is like a boon to investors who want to invest in gold, specially with the benefits it passes on to the consumers are numerous- no storage costs/worries, transparent pricing, redemption allowed, etc. and many more. I think its time that Indians will change their style of investing : From physical gold to E gold to avail its benefits!
Dear Viral,
What is the process of buying e-gold? do we need to open a demat account…
thanks
Deepak
I want to invest money in gold, I want to invest it for a long term period to accumulate a good amount for my future may be for next 10-15 years. Should I start SIP (Reliance gold savings fund) or egold option for that? I want to invest money after regular interval on monthly basis. I have already started SIP (equity related), to diversify my fund I want to take above. Plz advice which option will be better for me.
Which banks give e gold & is it beneficial
Indian Peoples are getting more awareness about his financial status so day by day they are buying gold biscuits and jewels. Jewelry shops also prepared different type of design and verity of jewels. Peoples are expecting good models and also quality. Wholesale Exports Jewelry, Indian Fashion and Costume Jewelries are giving the satisfaction to the customer,
@ Amit,
My above writing in favor of e-gold is misunderstood by you.
With your above comments I feel you are comparing e-gold to physical gold. If that is the case u r right, left, top and bottom too. When u pay money, nothing compares to having the physical asset in hand.
However I was comparing Gold ETF to e-gold.
Regards,
I was commenting on Viral’s blog.
Viral,
Agree that it depends on one’s point-of-view. I guess for short-term buy-sell ETF is better option than holding physical gold. But for long-term investment, one can buy 99.9% gold coins/biscuits from the banks e.g. SBI. I trust SBI (have to trust someone at the end of the day).
ON a sidenote, gold futures are not looking good, down at $1318 per ounce. I might stay away from this bubble all together.
Amit,
Yes, that’s again a different topic of discussion — that Gold could well be in the last stage of bubble. Well, I do agree. But, more on it some other time, may be.
Coming to one more aspect… You suggested about buying pure Gold through banks (be it SBI or HDFC Bank). But, what I strongly feel is one should never buy Gold from banks.
They charge huge premium to the market price — sometimes as high as 8-10%. This is a fact, do enquire with your bank and confirm the same.
There are numerous other sources from where you can get pure gold much closer to market prices.
Yes, they do charge 8% premium. But if you try to buy pure gold anywhere in the world, there is a premium. I tried buying coins in London (ATS Bullion) and they charge 8% too. But the premium is on the spot price and you know it’s really pure gold, so don’t mind paying it. Surely better than jewellers in India selling you the “pure” gold.
What happens if the party holding my E-Gold goes bust? Don’t tell me they never go bust because we have seen lots of trading/finance companies and banks going tits-up in last 2-3 years all over the world.
Amit,
Agreed with your point. But, then risk is associated with any and every asset class. Even safe Bank FDs tend to be risky during turbulent times. What’s more? We’ve also seen sovereign defaults taking place.
In fact, we might not have witnessed it so far; but even Gold as an investment avenue is fraught with risk. Yes, even physical gold. A time will come, when nothing will hold value — no currency, no bullion. It’s an extreme scenario; we should not debate it over here.
If you invest in gold ETF, there also the fund house can go bust. So, nothing is risk-free; but we need to move with a rational approach. If you’re afraid of the exchange itself going bust, simply diversify your assets across various modes of investment — like Gold ETF, e-Gold, Physical Gold, and so on.
“But, then risk is associated with any and every asset class.”
– exactly. So I’d try to take less risk by buying physical gold than e-Gold.
And agree that there will be a time when no currency and no bullion will hold its values. But then I won’t have any other choice then than accepting the fact that my cash and bullion has no value.
For now, given a choice of two, I’d chose physical gold than a print-out.
Amit,
Thanks again for your wonderful reply.
Yes, certainly, you could as well go for the physical gold, but then you might have to contain with extra costs & charges associated with the physical form of the shiny metal.
I’m sure you’d still argue that it is preferable to pursue the safety underlying the physical gold, rather than losing the whole pouch in case the exchange defaults.
But, more than the safety issue, a bigger risk today lies in purity of the yellow metal available in the physical form. That way, Gold ETFs or even e-Gold are a lot savvier options to go with, especially, if you’re looking at it from the investment purpose :)
Dear amit
you have change your traditional mind set that only physical gold is safe.
NSEL is a central government approved body and it can run away with you gold
just like any broker or trader. those who are considering gold as investment alone
E-gold is the cheap,best and safest option in india
Its an excellent article.
I never liked Gold ETF in the first place. There are so many things which I felt ETF is in conflict with real gold. This new tool e-gold covers most of my concerns.
For example these were my concerns with Gold ETF and how e-gold answered them.
1. Normally when we buy an asset we must feel its physical presence. Buying Gold ETF does not give that feeling. Suppose if I buy 10 grams gold in ETF, I should be assured that the MF is really holding 10 grams of physical gold on my behalf. Gold ETF never held physical gold. e-gold corrected this situation. For every gram of gold people buy, the exchange-NSEL will hold equivalent amount of physical gold.
2. I can not take my Gold ETF and ask the MF to either give me equivalent gold or pay me todays gold rate. They always charge a premium of 10% saying that they are doing me a service on both buy and sell. I can not get reasonable mortagage power also. Now with this e-gold ppl have that power. Ppl can carry their e-gold certificate and exchange for physical gold, or sell it at todays rate or give it to jeweller to make jewellary. The MFs say they are doing me a favor by providing security against theft of real gold which is meaningless. They charge for that too !! They make me feel I am indebted to them for giving me security.
3. Basically Gold ETF has nothing to do with gold. It is a simple trading tool based on fluctuations in gold prices. Where as e-gold is like holding real gold in hands.
I feel with this new financial tool people will shift from Gold ETF to e-gold as it gives more power to people.
Just my two paisa :)