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e-Gold by National Spot Exchange (NSEL) – Benefits, Buying Process, Charges & Tax aspects

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e-gold-nsel

All Trading on NSEL is currently suspended. NSEL went bust in July 2013  after two dozen counterparties declared their inability to settle payments amounting to Rs 5,600 crore to more than 13,000 investors.

UPDATE – 27  Mar 2014

NSEL is grappling with a payment crisis for settling dues worth Rs. 5,600 crore after it suspend trading activities in July 2013  following a government directive. The Forward Markets Commission (FMC) on Mar 27 2014 allowed scam-hit National Spot Exchange Ltd (NSEL) to convert e-series gold contracts into physical form – a move that would benefit 33,000 investors.

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Previously we discussed the benefits of trading / investing in electronic form of Gold (Gold ETF, Gold Funds etc) over buying physical gold, coins, jewellery etc.

In this post, I am providing information related to features of e-Gold (product of NSEL), its trading process, charges, taxation aspects, benefits etc.

The main distinctive features of e-gold are – very cost effective and can be converted to physical gold in smaller denomination (min 1 gram).

1. What is e-Gold?

e-Gold is an innovative commodities investment product from National Spot Exchange Limited (NSEL).  It allows investors to invest their funds into Gold in smaller denomination and hold it in Demat form for sale / physical delivery in future.

2. What is National Spot Exchange Limited (NSEL)?

National Spot Exchange Limited (NSEL) is the national level and transparent Electronic Spot Exchange set up by Financial Technologies India Limited (FTIL) and National Agricultural Co-operative Marketing Federation of India Limited (NAFED). It is commodities exchange in India just like Multi Commodity Exchange (MCX) & National Commodity and Derivatives Exchange (NCDEX).

3. How it is different from MCX & NCDEX?

MCX & NCDEX primarily offer a Derivatives market where futures contracts are traded. As against this, NSEIL is basically for SPOT market activities. This is ideal for SIP form of investing in Bullion

4.  What products can be traded on NSEL?

NSEL conducts spot trading in various agricultural and non agricultural commodities, including gold and silver.

However, a new e-Series is launched where products like –  e-Gold, e-Silver, e-
Copper, e-Zinc, e-Lead, e-Nickel& e-Platinum are allowed in smaller denominations for small investors.

5.  What is the process of Investing in e-Gold?

1) Account Opening

Retail investors who intend to trade/ invest in E-Series products (i.e. E-Gold, E-Silver, E-Copper etc.) are required to open a Trading Account with NSEL member & DMAT account with empanelled DP.

The process is exactly similar to client registration process for trading in the equity market.

This DMAT & trading account is separate from Shares DMAT / Trading Account.

You need to submit account opening form along with Proof of ID & address, PAN card, photo, cheque copy, bank statement etc.

2 ) Once the Account is opened, you can buy e-commodities same as buying shared.

Currently, NSEL has 50+ DPs. Some of the current empanelled DPs include Globe Capital Market, Karvy Stock Broking, Religare Securities, Goldmine Stocks and Aditya Birla Money, among others.

List of NSEL members where account can be opened

http://www.nationalspotexchange.com/eseries.htm?m=17

List of empanelled DPs can be found here

http://www.nationalspotexchange.com/eseries.htm?m=16

7.  Trade timing

You can trade the E-Series from 10:00 am to 11:30 pm in the night on weekdays, and the settlement is done on a T+2 basis.

8.  Returns

The returns are directly & closely related to the price of Gold. One unit of an e-gold is an electronic warehouse receipt of one unit of the gold. Thus, every unit of e-gold investment is backed by physical gold, which is stored in exchange-appointed vaults or warehouses.

Unlike ETFs, where small part (1-3%) is also invested in debt or cash instruments.

e-Gold will have normally better returns as compared to Gold ETF:

9.  Is investing in e-Gold Safe?

Yes. While the trade is done in electronic unit, equivalent physical gold is kept by the in the exchange designated vault having purity of 995 and is fully insured.

10.  What are the applicable Charges?

Investing in e-gold is very cost effective.

DMAT Charges:  One time DMAT Account Opening charges (Rs 600) Annual DMAT maintenance charges (Rs 300)

Trading Charges:   Like shares trading, you need to pay small brokerage charge when buying / selling the units. (Normally 0.25%)

However, there are no on-going AMC charges like ETF / Gold Funds.

So the returns from e-Gold are normally better than Gold ETF/ Gold Funds.

11.  Conversion into Physical Gold / taking physical delivery of Gold

One of the advantages of e-gold is that, you can take convert your electronic units into physical gold also.  You can take physical delivery in e-gold as minimum 1 gm lot, 8 gms, 10 gms, 100 gms and 1 kg.

a) Conversion charges –   Rs 100 for 1 gram coin, Rs 400 for 8 gm / 10 gm coins, NO charges for 100 gram coins and one-kg bar,

b)  VAT @ 1% throughout the country as well as octroi charges

You can take the physical delivery from any of the NSEL centres – Kolkata, Chennai, Hyderabad, Jaipur, Mumbai, Ahmedabad, Delhi, Bangalore, and Kochi.

 

12.  Taxation

The e-Gold units will be treated as Gold for tax purposes.

Capital Gains Tax :  Unlike gold ETFs, where one year is considered as the long term; for e-gold (similar to physical gold) three years is considered as long term for capital gain purpose.

Gains from e-gold, if it is sold within 3 years, are taxed according to the tax slab and at 20 per cent (after indexation) if sold after 3 years.

So, if you are planning to sell the gold before 3 years, then Gold ETF has an edge over e-gold.

Wealth Tax: Also, egold needs to be included for the purpose of wealth tax. Wealth tax is to be paid at the rate of 1% of the amount by which the net wealth exceeds Rs.30 lakh.

Wealth Tax is not applicable on Gold ETF.

13.  Benefits of e-Gold

1) Transparent pricing. All India Same price
2) Can be converted to physical gold
3) SIP facility available
4) No Annual AMC charges, thereby reduced cost
5) Liquidity, Purity, Safety

14.  Disadvantages:

1) Included for the purpose of Wealth Tax
2) Long term capital gain only after 3 years of holding

15.  Summary

For small amounts & shorter duration, it may not be worth (time or saving) opening separate DMAT & trading accounts for e-Gold.

If you are planning to invest large amount in Gold for longer term, then e-gold is one of the best option for you.

16.  Comparison of e-Gold vs Gold ETF vs Gold Funds

Read my other article on Comparison of e-Gold , Gold ETF & Gold Mutual Funds

Have you invested in e-Gold or were looking for information about it? Please share your views, opinions on this form of investment.

If you have any queries related to this article or any other personal finance query ( Investment, Taxation etc), please comment below

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About wealth18

The author is a Chartered Accountant and loves to write about Personal Finance, Wealth Management, Taxation etc. Disclaimer - The articles on this website is for informational and knowledge purposes and should not be treated as financial advice, Please consult your financial advisor before taking any investment decision.

5 comments

  1. I had purchased 10000 units of E-silver on 15/4/13 from NSEL. After settlement i recd funds from NSEL in 2 portion, 1st on 26/6/14 and 2nd on 16/09/14. I have incurred loss of Rs. 60000. As the period is less than 3 yrs, will this amt be decreased from my other income for tax calculation.

  2. sir
    Very good article. but e-gold is also taxable after keeping it for 3yrs but it is 20% and also we need to pay 1% wealth tax..?

    how it can be a good investment

    sudheer

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