Investing in gold electronically through gold exchange-traded funds (ETFs) is recommended. However, these ETF units are intangible; you can only trade them but you cannot convert them into physical gold. But with the e-gold facility provided by the National Spot Exchange, it is possible.
What is e-gold?
Though not very popular, the product was launched in early 2010. You need to have a demat account to trade e-gold. Same as equities the delivery is done in T+2 cycle, if you buy on Monday the delivery is done on Wednesday. Small units in the multiple of 1g can be bought at the market price of the gold. It is offered through few depository participants empanelled by the exchange.
Say, you have accumulated 50g of gold over a period time. You can visit any of the National Spot Exchange centres present in 15 cities and convert the same into physical gold. However, this may be difficult for people living in cities apart from these 15. You first need to rematerialize theses units (redeem your units) from your demat account and present the receipt at the vault. You can also visit any of the designated jewellery shop, names of which are mentioned in the product note, and get the amount of gold. However, there are very few jewellers empanelled.
Is it secured?
It is a secured way of investing in gold. A unit is only sold if physical gold is lying in the vault. Also, though buying e-gold is like buying physical gold, you need not worry about storing it. So you save on bank locker and also the anxiety in case high net worth of gold is lying at home. However, the product is new without any track record.
Comparison with ETF
ETFs can be bought and sold on exchanges in paperless format but you cannot convert them into physical gold, unlike e-gold. Also since ETFs involve various charges, such as management fee, which e-gold does not attract, actual returns are higher. Also, the trading window of e-gold is much wider—ETFs trade between 9.55am and 3.30pm whereas e-gold trades till 11.30pm.
However, the tax treatment of e-gold makes it expensive than ETFs. While short-term capital gain on both is charged as per the normal tax slab, to qualify as long-term capital you need to hold e-gold for three years unlike ETFs which qualifies in a year. Also there is a delivery charge attached with the product.