Commodity Query Corner

Can I buy e-gold and e-silver from a commodity exchange? Is it safe?

Soma Roy

E-gold and e-Silver were instruments sold by the erstwhile commodity exchange NSEL. The exchange launched e-series products in gold and silver in 2010 to attract retail participation. But it was forced shut after being caught in a multi-crore scam in 2013. Thus, neither the exchange nor its products are available for investors any more.

If you are keen on buying precious metals in the demat form in India, it is possible only in the case of gold. You can invest in sovereign gold bonds when the government comes up with the next issue (or buy them in the secondary market), or invest in gold ETFs (exchange-traded funds) of mutual funds. Mobile wallet providers such as Paytm, PhonePe, MobiKwik and now Google Pay, too, offer an option to buy gold electronically through their tie-up with gold refiner MMTC-PAMP. But with wallet providers, you need to carefully go through their terms and conditions. Some of them require at least one transaction every six months to keep the account active, and when you sell your gold, you will get a lower-than-market rate due to transaction-related and other charges.

In silver, there are no ETFs, neither is there a sovereign silver bond of the government. The only way to invest in the electronic form in silver is by buying a futures contract and keep rolling it over every month till you want to take delivery or close the investment.

In gold, however, demat investment is easy. Sovereign gold bonds are government securities denominated in grams of gold. The value of one bond is equal to that of one gram of gold. These bonds are issued by the RBI on behalf of the government. At the time of issue, the RBI will announce the issue price, which will be the rate of gold per gram. Once you buy, you will get the credit of the bond in your demat account. When gold prices go up, the value of your bond will rise. The investment tenure of these bonds is eight years with premature exit allowed after the fifth year. If you want to exit before five years, you can sell the bond in the secondary market. Sovereign gold bonds get listed on the stock exchanges usually within a fortnight of the close of the issue.

The next issue of sovereign gold bonds, the first for 2019-20, will be around Akshaya Tritiya. If you want to buy immediately, you can purchase them from the secondary market. The advantage of a sovereign gold bond is that there are no additional charges. Unlike gold coins and jewellery, you don’t have to cough up ‘making’ or ‘wastage’ charges. Further, the bonds come with a coupon of 2.5 per cent per annum. Sovereign gold bonds rank better than gold ETFs, which come with a fund management fee, reducing your overall returns on the yellow metal.

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