Over the last few days, market intermediaries have launched regulated versions of digital gold that also allow individuals to take physical deliveries. On paper, these products promise the best of both worlds: access to high-purity gold at transparent prices without the hassle of storage. However, the jury is still out on whether or not these products meet investors' real needs.
The National Stock Exchange (NSE) launched Electronic Gold Receipts (EGRs) on 4 May and Dhan, a broker, launched a gold vault on 29 April.
In NSE’s EGR offering, gold is held in demat form. Simply put, gold already sitting within the formal vaulting ecosystem can be converted into an electronic receipt that can be traded on the stock exchange, much like shares. Individuals can then buy and sell EGRs on the exchange. And in the case of Dhan’s gold vault, investors can buy a gold futures contract at live Multi-Commodity Exchange (MCX) prices by paying the entire contract amount upfront. In both the cases, individuals can take the delivery of gold, if needed.
However, there are practical challenges here. In the case of EGRs, since individuals have to themselves collect the physical gold from the vaults or vault branches, and the number of them being limited, they may have to travel long distances to take the physical delivery.
While platforms such as Dhan promise doorstep delivery, the end use-case for most retail investors is still likely to be jewellery consumption.
In both the cases, investors would eventually have to approach a jeweller to convert the gold into jewellery, bringing back the same counterparty and trust risks around purity and pricing that these products are attempting to eliminate in the first place.
Moreover, goods and services tax, storage, and delivery charges may not make it an ideal investment option, say experts.
In value terms, India's gold demand in Q1FY26 was $25 billion, as per the World Gold Council data. Gold prices have surged 122% over the last two years on the MCX, per Bloomberg.
What do these products offer?
One of the key objectives of EGRs is to make investing in gold more accessible. Individuals no longer need to buy large quantities of gold to participate in the market, as EGRs are available in denominations of as low as 100 milligrams to 1 kilogram. The previous metal is available in 995 and 999 purity, which is higher than the 22-carat gold commonly used in jewellery. Buyers and sellers can participate in these EGRs by simply trading on the exchange.
Dhan’s gold vault helps an individual with access to 999 purity gold in sizes as small as 1 gram. And since this will be settled with MCX, it eliminates counter-party risk that a jeweller may create.
Both the offerings ensure safety by storing gold in regulated vaults.
Jay Gupta, chief operating officer at Dhan, said individuals get access to real-time prices on the MCX. “When a user buys gold through conventional methonds, gold prices are typically updated once a day and remain static throughout the day. But recently, gold prices have become highly volatile where the difference between morning and evening price was 5%... Retail investors had no access to real-time transparent pricing,” he said.
What’s the issue then?
If an individual wants physical delivery of the gold they purchased via EGR, they can place a redemption request through the depository. The depository will then coordinate with the vault manager to deliver the gold to the designated vaults or withdrawal centres.
However, if individuals have to collect the gold, they have to take the delivery from these vaults or withdrawal centres. Now the Securities and Exchange Board of India (Sebi) says all branches of vault managers can also act as delivery centres. There are only two vault managers in India—Sequels Logistics Pvt Ltd and Brinks’ India Pvt Ltd. Sequel has branches in only 75 cities in India, as per the company’s website, while the number for Brinks is not known.
The delivery infrastructure here may thus become a problem. For the average Indian investor, travelling to collect 10–15 grams of gold from another city becomes cumbersome, said Amit Sahita, director at Fincode Advisory Services Pvt.
Emailed queries related to the issue to NSE remained unanswered.
As for Dhan, the physical gold will be delivered at home after the investor pays some delivery charge.
Apart from the delivery angle, there is another issue. Individuals taking physical delivery of gold may mostly buy it for consumption. “Even if individuals take delivery of the gold, they would still need to go to a jeweller to convert it into jewellery, bringing back the same trust issue around purity and quality. This is also why branded jewellery companies continue to gain market share, as consumers trust them for buybacks, exchanges and purity assurance,” said Abhishek Kumar, a Sebi-registered investment advisor and founder of SahajMoney.
So, what should investors do?
Actually, both the products may not be optimal as investment options, say advisors.
The reason being that these products attract storage and delivery charges, as well as GST.
“The moment physical delivery comes into the picture, you lose 3% because of the GST on gold. For a pure investor looking for returns, gold ETFs still remain the most logical and cost-effective option, even after accounting for annual expense ratios of 40–50 basis points,” said Sahita of Fincode Advisory.
For investment, ETFs come across as a better option, as there are no GST, storage or delivery charges applicable.
Who, then, should buy these products?
It can be a great product for jewellers who want to accumulate gold at intervals and make an end-product with it. This way, the jeweller can take the purest gold at future prices and sell it ahead.
Or if physical gold has to be bought for gifting or inter-generational transfer, said Gupta of Dhan. ETFs are suited for pure financial exposure, while vault-linked gold products appeal to investors who value optionality between digital accumulation and eventual physical ownership, he sums up.
In the wake of the disruptions caused by the ongoing West Asia war, Prime Minister Narendra Modi had recently urged Indians to avoid buying non-essential gold for one year to conserve the country's foreign exchange reserves and check the rupee's slide. On 13 May, the government also raised the import duty on gold from 6% to 15% in a bid to discourage purchases.