The obsession of Indians with gold dates back centuries. Whether it be marriages or any other festival celebrations or making investments, gold will always remain a favorite among many Indians. And recently, in its effort to digitize the gold industry in India, the National Stock Exchange (NSE) has launched electronic gold receipts.
EGRs are being seen as a milestone initiative taken by NSE to formalize and digitize the gold industry. With the digitalization of gold, the transparency of gold investments is expected to see an increase along with making them more safe and convenient for all Indian investors.
What Are EGRs?
Also known as electronic gold certificates, electronic gold receipts (EGR) refers to the securities which represent ownership of gold held in SEBI-approved vaults. In other words, instead of buying gold jewellery or coins or bars and keeping them, people can directly buy them from their demat accounts on the stock exchange.
To put it simply, EGRs refer to the digital receipt of the gold holdings. The gold itself is kept securely in approved vaults while the ownership is kept in the demat account of the investor.
These receipts can be freely bought and sold at exchanges just like stocks or ETFs without the hassle of theft, safekeeping, and purity concerns.
How Do EGRs Work?
The process of Electronic Gold Receipts is fairly simple, with a lot of technical aspects involved.
Physical gold is first put in SEBI-certified vaults via registered refiners or importers. The gold vault manager checks for the purity and amount of gold put into the vaults. Upon validation, electronic receipts are issued, which are deposited in the demat account of the investor.
Once the above process is completed, EGRs can be freely traded on stock exchanges like NSE and BSE at market timings just like equity shares.
For investors who need physical gold as opposed to just owning the receipt, the EGR can be redeemed, and the required amount of gold can be taken out of the vault.
This way, every EGR is backed by actual physical gold.
The “One Nation, One Price” Vision of NSE
One of the best features of the EGR platform offered by the NSE is that of “One Nation, One Price.” As per the description provided by NSE, “one nation, one price” aims at creating uniformity in the prices of gold throughout the country.
In the past, gold prices were not constant throughout all the cities, mainly because of the logistics expenses, local taxes, and jeweler margins. This would be helpful in creating uniformity in the gold prices all across the country.
This is expected to reduce any sort of information asymmetry in the markets while also benefiting the investors, jewelers, traders, and refiners.
Advantages of Investing in Exchange-Traded Gold Receipts
1. Safe Investment
In comparison to physical gold, EGR investments do away with the risk of any thefts or lockers. The gold is kept safely in controlled vaults.
2. Guaranteed Quality
As is the case with every gold buyer, purity of gold is of paramount importance for an investor in the EGRs. EGRs ensure gold which is certified under the strict quality standards.
3. Convenient for Trading : As EGRs are exchange-traded securities, one can buy and sell them at any time of the day through his or her trading account.
4. Liquidity
Investors don’t have to visit jewellers to sell gold. EGRs offer them liquidity on par with stocks and ETFs.
5. Physical Delivery Facility
While EGRs are virtual products, investors can always choose to take possession of their investments as physical gold whenever they wish to.
6. Investment Portfolio Diversity
Historically, gold serves as a hedge during inflation and times of economic instability. EGRs present an opportunity to diversify investment portfolios virtually.
Difference between EGRs, Physical Gold, and Gold ETFs
The uniqueness of EGRs lies in their ability to combine the advantages of physical gold and Gold ETFs while compensating for their drawbacks.
Physical gold is owned directly, however, the owner has to face making charges, storage expenses, and issues related to purity. With Gold ETFs, one has market-based exposure without physical delivery capability.
EGRs, on the other hand, come with the security that comes with ownership of physical gold but with no making charges, storage cost, or purity risk.
Who Can Invest in EGRs?
Individuals, traders, jewelers, refineries, and institutional investors have an opportunity to take part in the EGRs. The experts suggest that the platform will be of particular interest to young people who prefer investments in digital assets.
Investment in the assets requires a dematerialized account and a trading account on the platform of a registered broker. After the accounts have been opened, the investors are allowed to buy EGRs directly via the exchange platform.
EGRs: A Huge Step Towards the Formalization of India’s Gold Sector
India is among the major consumers of gold in the world. Nevertheless, there exists a significant part of the market that lacks any formal organization. According to the experts, the introduction of EGRs will lead to increased transparency and traceability of transactions in the sector.
Thus, EGRs may contribute to a higher level of confidence and improved investment environment in the Indian gold market.
Apart from that, the government has been making efforts aimed at reducing the burden related to gold imports and activating dormant household gold.
