NSE introduces Electronic Gold Receipts: What are they, how to trade and benefits explained

Indians have always trusted gold, but investing in it hasn’t always been simple. From storage concerns to purity issues, physical gold comes with its own challenges.

To address this, the National Stock Exchange of India (NSE) on May 4 launched Electronic Gold Receipts (EGRs), a new process of buying and trading gold digitally.

But first, let's understand what EGRs are before moving on to how they work.

What are EGRs and how do they work?

EGR is an electronic receipt issued against physical gold deposited with a Sebi-accredited vault manager. These are dematerialised securities and are tradable on the exchange like a stock, thus seamlessly integrating gold into the formal financial system. These EGRs represent real gold stored securely in vaults.

NSE, in its press release, stated that it successfully dematerialised a gold bar of 1000 grams into an Electronic Gold Receipt, symbolising the conversion of physical gold into a secure and tradable electronic instrument.

Can investors take physical gold in exchange for EGR?

Since each of the EGRs is backed by physical gold, the investors, at their discretion, can surrender the EGRs and take physical delivery of the corresponding quantity and quality of gold.

What are the benefits of EGRs?

NSE said EGRs are expected to bridge the age-old gap between physical gold and the financial markets by offering a regulated, secure, and technologically advanced platform for trading in the precious commodity.

Unlike physical gold, EGRs offer the ease of trading and storing the bullion. It eliminates the risk of theft, loss or costs of bank lockers. Meanwhile, investors need not worry about the purity, and they are certified by Sebi-regulated vault managers. Currently, gold conforming to the Good Delivery Standard notified by the London Bullion Market Association (LBMA) and the Bureau of Indian Standard (BIS) is allowed for conversion of gold into EGR.

EGRs allow investors to participate in the gold market even in smaller denominations, providing improved liquidity and flexibility.

Who will benefit from EGRs?

NSE-launched EGRs aims to create a robust and transparent ecosystem for gold trading, which would carry lesser risk, ensure wider participation and enable efficient price discovery. This bodes well for various stakeholders, including jewellers, refiners, traders, and institutional investors.

Since EGRs can be traded in small denominations, it would likely make gold accessible to retail investors, acting as a great diversifier for their portfolios, especially amid a volatile geopolitical environment.

How are EGRs different from gold ETFs?

The core difference between EGRs and gold ETFs is the underlying asset. While EGR represent physical gold in a vault, ETFs are units of a fund that invests in gold. Moreover, investors can take physical delivery of gold in case of EGRs, which is generally not the case with ETFs for retail investors.

On the flip side, ETFs are already widely traded and have a well-established investor base, while EGRs are a new segment, likely to evolve over time.