Traditionally, gold shares an inverse relationship with equity markets. Other than physical gold, there are several gold investment products available in the market, such as electronic-gold (e-gold), gold exchange traded funds (gold ETFs) and Sovereign Gold Bond (SGB) Scheme. E-gold is gold that can be bought in electronic form. E-gold enables purchase of non-physical gold in small quantities which can be converted into physical form under certain conditions. 1 unit of e-gold is equivalent to 1 gm of gold. On the other hand, gold ETFs are similar to mutual funds wherein investors can buy their units online and keep them in a demat account.
How to buy e-gold
E-gold, which was introduced in India by NSEL (National Spot Exchange Limited), enables investors to park their funds into gold in smaller denomination and hold it in a demat (dematerialised) form. “One can buy e-gold from NSEL. However, one is required to open a demat account with one of the authorised brokers,” says Dinesh Rohira, Founder & CEO, 5nance.com, a robo-advisory.
“This demat account has to be opened from the depository participant (DP) that is approved by the National Spot Exchange Limited,” says Abhishek Bansal, chairman, ABans Group of Companies.
Advantages of investing in e-gold
According to analysts, e-gold provides benefits like flexibility of buying and high liquidity. “In case of e-gold, the investor only pays for gold and not the associated cost. Thus, it provides him relatively high liquidity and better options,” explains Sudeesh Nambiath, Head, India Gold Policy Centre (IGPC).
How e-gold differs from gold exchange traded funds (gold ETFs)
According to Mr Bansal, e-gold can be converted to physical metal wherein the minimum quantity of converting is 8 grams. “Gold-ETF can be converted to yellow metal only when it exceeds 500 grams to 1 kg,” he says.
“E-gold is traded from 10 am to 11:30 pm from Monday to Friday whereas gold ETF’s are traded only till 3:30 pm” he adds.
Taxation also differs in both the cases. “For gold ETF, one year is considered for LTCG (Long Term Capital Gains). On the other hand, for e-gold, the period of LTCG is 3 years,” Mr Bansal explains.
The long-term capital gain amount is determined by the difference in value between the sale price and the purchase price.