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National Spot Exchange Ltd (NSEL), a subsidiary of Financial Technologies (India) Ltd, suspended trading in e-series contracts on Tuesday till further notice. This means that e-series products, including e-gold and e-silver, designed to allow people to invest in commodities in demat form or electronically, are not available as of now.

“It is believed that trading will be on halt for the next two-three days, which means that you will not be able to buy or sell any of the products electronically in the interim," said Renisha Chainani, commodity analyst, capital markets (individual clients), Edelweiss Financial Services Ltd.

What’s e-gold/e-silver?

E-gold/e-silver is the process of buying gold/silver electronically. These were the first securities to be introduced for retail investors by NSEL.

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.

What are your options?

NSEL issued a circular late on Tuesday explaining the measures that the exchange has taken to safeguard investors’ interests because of the suspension of trading.

The exchange has suggested two measures to investors to safeguard their interests. One, if you are holding units of e-series products, you can apply to get them converted into physical form, which will be facilitated by the exchange. Two, you can continue to hold the stock in demat form.

“During the (halt) period, investors can either convert paper gold and silver into physical gold and silver or hold the stock electronically," said Chainani.

Withdrawal in physical form: “The discontinuation of trading in e-series products such as e-gold and e-silver means that liquidity is over (for the time being)," said C.P. Krishnan, whole-time director, Geojit Comtrade Ltd. This may prompt many to withdraw.

Remember that withdrawal in physical form has charges attached, such as conversion charges, value-added tax and octroi. Says Kunal Shah, head of commodity research, Nirmal Bang Securities Pvt. Ltd, “If you want to convert e-gold units into physical gold, the conversion rate for one unit of 8g and 1 unit of 10g is 200. For conversion to 100g coin, it is 100. There is no conversion fee for conversion to 1kg bar. You will also have to pay value-added tax of 1%. Investors will have to pay octroi, too."

Now, you can withdraw e-series products in physical form of any lot size. For instance, in the case of e-gold, if you have 1g, you can convert it into physical form. For e-silver, the limit is 100g.

Holding in demat form: If you don’t want physical gold, the exchange is currently giving you the option to continue to hold the units in demat form. While trading is likely to resume in a few days, the government is expected to back your investments. Says Surya Bhatia, a New Delhi-based financial planner, “No matter what happens, retail investors will surely get some leeway to withdraw the commodities that they have invested in."

What should you do?

The option you choose depends on your preference. According to Bhatia, “If you want money in the short-term convert it into physical gold as these are difficult times. Others can hold it in demat form till the government intervenes or further development." Weigh the options well.

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