National Spot Exchange Ltd (NSEL), a subsidiary of Financial Technologies (India) Ltd, suspended trading in e-series contracts on Tuesday. This means that e-series products, including e-gold and e-silver, which were designed to allow people to invest in commodities in demat form are not available as of now.
What are e-gold and e-silver?
E-gold/e-silver is the process of buying gold and silver electronically. E-gold and e-silver were the first securities to be introduced by NSEL as part of the initiative to allow retail investors to invest in demat form.
You need to have a trading account with an authorized broker to hold e-gold and e-silver. Each unit of e-gold is equivalent to a gram of physical gold and one unit of e-silver is equivalent to 100g of physical silver.
You can even convert your electronic gold or silver back to physical commodities through the exchange itself.
What should you do?
If you hold e-gold or e-silver, a way out is to redeem through the physical route until the suspension continues.
“It is believed that the trading will be on halt for the next two-three days,” said Renisha Chainani, commodity analyst, capital markets (individual clients), Edelweiss Financial Services Ltd. “During this period, investors can only convert the paper gold and silver into physical gold and silver. You will not be able to buy or sell any of the products electronically.”
Remember that withdrawal in physical form has charges, such as value-added tax, attached. As a rule, you can withdraw e-series products only if there is a certain lot size. For instance, in the case of e-gold, you can convert it into physical form only if you have at least 8g of gold; any quantity below that can’t be converted. For e-silver, the limit is 100g.
The option to trade in demat form since electronic trading has been suspended for now is currently not available.
“The discontinuation of trading in e-series products such as e-gold and e-silver means that your liquidity is over,” said C.P. Krishnan, whole-time director, Geojit Comtrade.
Surya Bhatia, a Delhi-based financial planner, said, “There will be no liquidity as of now but investors should not panic. The problem is on the supply side so there is nothing much you can do.”
NSEL issued a circular late evening on Tuesday. The circular stated that in this situation, the exchange suggests the following measures to investors to safeguard their interests: People holding stock can apply for converting to physical and the same will be facilitated by the exchange and people can also continue to hold the stock in demat form.