An ‘E'asy way to buy gold!

You have been eyeing that gold ornament in the jeweller's window. If it is to be a gift to your wife on your anniversary, forget skimping on the making charges and go in for that expensive piece of craftsmanship! But if you are looking to buy jewellery as an investment for retirement or your daughter's wedding, that's another matter. Then you need to look into boring stuff like prevailing gold prices, add-ons like making charges and losses being slapped on to your jewellery so that you end up getting the best deal!

Based on last week's prices, buying a 24 carat (99.9 per cent purity) 10 gram gold coin from a bank would have cost Rs 23,733 (including customs duty and VAT). Buying the same from a next-door jeweller, you may shell out about Rs 23,550 (including 7% wastage and VAT). If you bought the same amount of ‘paper' gold from the stock exchange as an exchange traded fund, you can buy it at the prevailing net asset value (linked to the international price of gold), but you would have to pay annual charges in the form of asset management fees to the fund and even suffer a ‘tracking error', that could impact returns. So is there an option that gives the benefit of demat investing and yet allows you to benefit directly from gold price gains?

There is one now - e-gold - the National Spot Exchange's demat gold unit. When you buy e-gold, you can buy a 10 gram (99.9 per cent purity) gold coin for a price of Rs 20,736 (the rate is market-determined.) There will be no wastage charges. You need not look for a locker to safe-keep it, as it will reside in a demat account. And you may even get the option of converting your holding into equal weight of gold jewellery!

A spot market for gold

Till last year there was no easy way to buy gold in the spot market. A would-be gold investor had to either buy it as coins from a bank or buy it as jewels or buy it in demat form as ETF from a mutual fund house. In the commodity futures exchange, the lot size was bigger and delivery happened only in specific locations making it infeasible for many small investors to take advantage of it. The National Spot Exchange Limited (NSEL), an electronic spot exchange for commodities, wanted to make commodity investing simpler for retail investors and launched ‘e-gold' in March last year, kicking off its series of e-products.

E-gold is available in a minimum denomination of one gram and can be delivered at 15 locations across the country . Just as you can trade equities in the stock market, here too you can make an on-line transaction. On purchase, units of e-gold get credited to the buyer's demat account; the underlying unit of physical gold is stored in the exchange's vault. The trade platform for e-gold is open till 11 pm in the night helping investors act based on the changes in gold prices in the US commodity markets.

For trading in e-gold units you pay brokerage (currently around 0.25 per cent of traded value) and for physical delivery an additional one per cent as coin-making charge with one per cent tagged on as VAT. Looking at various parameters - ease of transaction, cost of purchase, returns and safe-keeping, e-gold seems to be a smarter way of investing in gold. In less than a year's time , NSEL's e-gold and other products in e-series (that include silver) have caught investors' fancy and have resulted in a significant boost in .

How you lose out when buying jewels

The last time when you purchased gold, did you look into the estimate the jeweller scribbled on a piece of paper? Let us take you through it now. To the weight of the ornament, the jeweller adds 2-7 per cent towards ‘wastage' (while converting gold into an ornament). On the net weight so calculated, the jeweller applies the prevailing gold ‘rate'. But wait, even this not your final cost.

The jeweller adds ‘making charges' too to the bill. Making charges can vary from 10 per cent to as much as 25 per cent, depending on the intricacy of workmanship. With all these ‘costs' adding on to the price of the jewellery, is it a surprise that you may not make much by way of returns? Do bear in mind that when you go back to the jeweller to exchange your old jewellery, you will again be levied wastage charges!

The other conventional way of buying gold is purchasing it in bar or coin form from a bank. However, banks too are known to charge a 10-15 per cent premium over the prevailing gold price towards customs duty and making charges. Then, there is the fact that banks only sell gold bars but don't buy them back! The last option left for the gold investor is gold ETFs. Gold ETFs allow you to buy gold at the payment of brokerage charges and hold it in your demat account. But the key problem with Gold ETFs is that you can only transact in them at the market prices determined in the stock exchange. These may, at times, not be commensurate with the return on physical gold.

The above styles of investing in gold have other disadvantages as well - fear of theft and locker maintenance cost in the case of jewels, fund management cost and inability to trade after closure of the equity markets in case of gold ETFs. E-gold addresses all these drawbacks.

Convert it to jewellery

NSEL has announced that it is looking to empanel top jewellers with it and enable conversion of e-gold units into jewellery. The exchange is drafting regulations and the code of conduct for jewellers is supposed to be finalised by March this year.

Under this facility, the investor can transfer his e-gold units to the jeweller and buy jewellery for the same weight. Mr Anjani Sinha, MD & CEO, National Spot Exchange, says, “E-gold will be converted at the then prevailing price in the market. There will be a conversion formula for this. E-gold units are 24 carat gold. So if our customer is buying 18 carat gold or 22 carat gold jewels, then he will be getting extra grammage while converting it into jewellery. The customer will not be required to pay anything out of his pocket but the making charge on the new ornament…there will be no wastage charge”. Sounds like a glittering deal, doesn't it?

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