Personal Finance

Explained: Gold exchange and EGR

Akhil Nallamuthu | Updated on: Jan 15, 2022

Investors will be able to invest in gold in the form of Electronic Gold Receipts via any recognised bourse in India

Raquel feels that her portfolio needs diversification and plans to add gold to it. As she starts evaluating the investment avenues, she comes across the new SEBI (Securities and Exchange Board of India) regulations regarding gold exchange. And now, she wants to know what exactly gold exchange is and whether it can be the best way for her to take exposure to the precious metal. For this, she contacts none other than the Professor himself, Sergio from ‘La casa de papel’. After all, who can be better than the professor in analysis and planning?

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Raquel: Sergio, what do they mean by gold exchange?

Sergio: Until now, there is no spot market for gold in India and we used to be price receivers from the international market. Gold exchange facilitates spot market for gold in our country and through any recognised exchange in India, we will be able to invest in gold in the form of EGRs (Electronic Gold Receipts). This way, we will have a benchmark price for the yellow metal and the price discovery will happen based on domestic supply and demand.

Raquel: Well Professor, what is an EGR?

Sergio: EGRs are nothing but digital receipts of gold issued against the amount of physical gold lying with vault providers. These receipts are issued by the vault managers and will be in accordance with SEBI regulations. And, Raquel, note that EGRs are notified as securities by the market regulator which is what enables us to buy and sell them like stocks, through the exchanges. But remember, you need to have a demat account, which is a must.

Raquel: If jewellery is what I need, I understand that I can go and shop from any jeweller. But as an investment avenue how does this differ from, say, gold ETFs (Exchange Traded Funds) or SGBs (Sovereign Gold Bonds) or even digital gold?

Sergio: While digital gold, as a product, can be closely relatable to EGRs, it works in a regulatory vacuum. ETFs, SGBs and EGRs are governed by rules and regulations. Operationally, ETFs and EGRs can be traded through exchanges; the former are issued by mutual funds whereas the latter by vault managers. Both are backed by physical gold. SGBs, on the other hand, are issued by the RBI (Reserve Bank of India) with eight years tenure. While SGBs are also traded on exchanges, there is a lock-in period of five years before one can redeem the bonds.

Raquel: Can I take physical delivery of gold against EGRs?

Sergio: Of course, yes!

Raquel: How does that work?

Sergio: If you decide to take delivery of physical gold against the EGRs that you hold, you place a request to the depository and the depository, in turn, will intimate the vault manager (who stores physical gold and issues EGRs against those holdings) about the same by providing your details. And then, you will get it.

Raquel: Am I assured of the standards?

Sergio: Yes, Raquel. You can be sure of the quality as the vault managers, when receiving physical deposits, will make sure that the standards are in line with what SEBI specifies. The gold complies with either LBMA Good Delivery standard or India Good Delivery standard.

Raquel: With the information that you have provided me, I think EGR can suit my requirements which are safety and standards, regulated, can be accessed any time on the exchanges and if at all I need I can take physical delivery.

Sergio: Sounds good. However, remember that the charges related to EGR transactions, and the minimum unit size are still unknown. Also, for the liquidity to pick up on the bourses, it might take some time.

Raquel: Noted, Professor!

Published on January 15, 2022

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