Gold is one asset class which is consumed in many forms. But each one is suited in different scenarios.

For instance, a simple gold bar is different from jewellery and investing through gold ETF has its own
advantage. "At times it's difficult for an investor to make a choice. So before making any investment
decision, you need to analyze your requirements and then weigh the various options of investing in this
asset class to identify which one will match your objective," says Jitendra P.S. Solanki, a SEBI-registered
investment adviser and founder of JS Financial Advisors.
Here we take a look at the different options of investing in gold and also when should they be considered:
1. Jewellery
Traditionally Indians like flaunting this assets and that's one of the reasons why gold is so popular here.
But buying gold in the form of jewellery has its own costs involved. The primary one is the making
charges, which can be to the tune of 10%. There are costs associated even when you sell jewelry,
especially when it is to a different jeweler. More than that the change in designs and other factors over
the time does not hold good for investing though this mean in the long term. It may be a viable option if it's
for immediate use or it has to be gifted. If you are looking at holding the asset for a very long term, other
options will be more cost effective and liquid.
2. Bar, Coin or Biscuit
Gold bar is one of the oldest forms of preserving gold. There is less cost involved than buying gold in the
form of jewellery. Where you incur higher charges is the preservation of the physical asset when you
have to keep it in a safe custody. Most banks and financial institutions are selling gold coins. In fact, it has
become a most lucrative form of gifting during festival or promotions. But the price of buying a gold coin is
higher than the market rate so that the institution selling it can earn profit. Also, banks only sell it and are
not allowed to trade by the regulator. So, "if you do buy a gold coin, you will have to sell it to a jeweler
only who will deduct charges then. With all these costs involved, holding gold physically will not be cost
effective. Knowingly if you decide to invest through these means, buy it from a reputed jeweler as there is
always a purity issue. This will also help you avoid the cost during selling it when in need," says Solanki.
3. Gold ETF
Exchange Traded Funds (ETF) have been gaining slow acceptance in India and gold ETF has emerged
as one of the favorite investments. This is primarily due to a few reasons. Firstly, these are traded on a
stock exchange providing high liquidity to investors. Every unit of ETF is equivalent to 1 gram of gold.
Secondly, investors do not have to bear high cost unlike physical gold and the underline gold held by
institution is also of high purity. Thirdly, the gains are treated as long term after one year and there is no
wealth tax like in physical gold. However, one need to manage a demat and trading account to invest
through ETF. Also, there are expenses within the fund (.5-1%) which one need to be aware of. The ease
of investing and high liquidity are the main drivers for attraction towards gold ETF. Overall investing
through ETF is the most viable option when you want to take exposure in gold.
4. E-Gold
After the NSEL fiasco, e-gold has lost its sheen. They were similar to gold ETF with a major difference
that e-gold is traded up to 11.45 a.m. This provides much higher liquidity than gold ETF. Also, it's the only
option where units can be converted to physical gold and unlike ETF, there is no difference in prices. "But
the long-term capital gains arise after 3 years and wealth tax is applicable. Also, opening a separate
demat and trading account may be cumbersome for some people. Have been a good option only if you
don't mind operating extra demat account. Moreover, after the NSEL scam, it will take time for e-gold to
gain interest," says Solanki.

5. Gold Funds
Unlike gold ETF, gold mutual fund schemes are not traded on any exchange. These are identical to
mutual fund schemes which a common man is conversant with. There are two categories of gold funds -Gold Fund of Fund and Gold Funds. An FOF invests in gold ETF while gold funds invest in mining
companies. Although these have easier option to invest, gold FOF have higher expenses and gold funds
have higher risk associated as they invest in stocks. One needs to be aware of these factors before
availing this option.
Whatever be the case, gold is an ideal investment avenue to hedge inflation. But you should not invest in
gold only based on the past performance of any option, as there is no guarantee of the repetition of that
performance again. Therefore, look at the long-term results and expect reasonable returns from the
avenue in alignment with your objectives. Before availing any option, you should look at your
requirements and then decide. From financial planning perspective, however, keep the exposure in gold
within certain limits.
E-gold is the electronic mode of investing in gold, which allows conversion to physical gold at any time. It can be
bought as e-gold units in the demat form through the National Spot Exchange (NSEL) platform, with each e-gold unit
corresponding to 1 gram. Investors have the option to invest and trade in gold without taking delivery of physical gold,
saving them the holding and storage cost. Demat account A demat account needs to be opened with a depository
participant empanelled...

Benefits of e-Gold

As NSEL functions on a pan India basis, the price quoted for e-Gold is same throughout India. This
eradicates the price bias owing to different geographies. The e-Gold units possess dual character of
physical assets as well as financial assets and may be liquidated just like your shares. So one has
liquidity at his will.

When it comes to e-Gold units, the difference between the net sale price (SP) and purchase cost is
very low, approximately Rs. 10/gram whereas the same difference in case of physical gold is pretty
high. This confirms higher returns if the e-Gold units are bought and held as investment. In addition,
as the gold is held in electronic form, one is able to save on locker charges and is not required to be
concerned about burglary and robbery of the gold.

If you happen to buy physical gold, you will be given physical gold that is duly certified; hence taking
care of purity concerns.

As the price that is quoted is transparent, it guarantees effective price discovery for purchase and
sale, whereas this is not observed when one holds gold in physical form. In addition, it isnt that
simple to sell your physical gold as is the case with E-Gold, which is possible simply by a click.

E-Gold has transformed a physical asset into a financial asset. Hence with e-Gold one may very easily
apply the concept of assets allocation and rebalance your portfolio at regular intervals among
different asset class like equity, debt and bullion because transaction costs are meager.

E-Gold also provides one the option to collect gold over a long period for social obligation in very
minute quantities at extremely economical prices.

Costs involved

The buying of e-Gold has certain repercussions with regards to transaction cost. The broker shall charge
brokerage for purchase/sale of the e-Gold units (similar to brokerage charged on purchase/sale of
shares) which ranges between 0.25-0.50%. Moreover, broker will recover transaction cost at Rs 20/lakh,
which is charged by the exchange.
Besides transaction costs, you have to pay your depository participant, where one has opened their
demat account, the annual maintenance charges of nearly Rs 300 p.a. Initially, the exchange used to
charge to recover the costs of storing the Gold in safe deposit vaults but it has been discontinued. You
are permitted to trade in the e-Gold units during the day but you need to make sure that all the
outstanding position by the day-end must result in either delivery or payment. The delivery/payment
mechanism with regards to e-Gold is akin to that of stock exchanges. In the event of short delivery etc.
there is an auction mechanism, just the way it is conducted in BSE and NSE.
Conversion of e-Gold into physical gold
Each unit of e-Gold released by the exchange is backed by an equal amount of gold in its vaults. One
may anytime request their bank to offer him with currency notes equivalent to the amount lying in his
bank account, similarly, one is also entitled to request the exchange to provide them with physical gold
equivalent to the no. of e gold units lying in their demat accounts.
In order to convert your electronic gold units into physical gold, you must surrender the electronic units
and apply for physical gold. One has the choice to take the delivery of the physical gold at any place
where NSEL has delivery centers. At present, the exchange has delivery centers in Mumbai, Delhi, and
Ahmedabad. The exchange, at present, provides the choice to exchange your e-Gold units into
coins/bars of 8, 10, 100 gram and 1 kg and any combination thereof. It charges an amount of Rs. 200
each for conversion of 8 gram/10 gram coins. In case of 100 gram coins, conversion charges levied for
making and packing is Rs. 100.
For one-kg bar, the exchange doesnt charge anything. In addition to these charges, one is required to
pay VAT @ 1% throughout the country as well as Octroi charges to convert electronic units into physical
coins. Octroi pertinent in Mumbai is 0.1 %. For each case of delivery, you are required to pay Rs. 200 for
delivery charges, regardless of the quantity of the delivery desired. The depository shall even charge you
Rs. 50 on each such request.
As Rs. 250 is the fixed charge for every single request for physical delivery of gold, it is wise to let the
units amass and to take delivery in economic lots. Do make a note that these charges will be levied only
when the physical delivery is taken. If the e-Gold units are unloaded in electronic form, these charges
will not apply.
Tax treatment
The e-Gold units shall be treated as Gold for tax purposes. The units must be held for more than 36
months to avail the concessional in tax on long term capital gains and to be eligible for exemption under
Section 54 F/54 EC of the Income Tax Act, 1956. You are even required to pay wealth tax on the market

value of the electronic units that lie in your account as on March 31 of each year, in case the total value
of your taxable wealth along with market value of e-Gold goes beyond Rs. 30 lakh.
I am certain that, e-Gold in due course will succeed in transforming the way in which people invest in
gold for long term and hold their gold.
How does e-Gold function?
As e-Gold can only be bough in electronic form, one must possess a demat account. The existing demat
account which you use to transact in shares etc. will not work for holding e-Gold units. One requires
distinct demat accounts to trade in commodities and equities. So, you are required to open a separate
demat account with one of the depository participant (DP) empanelled with the National Spot Exchange
Limited. The list of such depository participants can be downloaded from the web site of National Spot
Exchangehttp://www.nationalspotexchange.com/EmpanelledDPs.pdf. Settlement is done on (T+2)
basis. One is entitled to take physical delivery of gold by giving up the required units to the exchange. At
present, there are 3 delivery centers of gold in India- Mumbai, Delhi and Ahmedabad.
Moreover, you are also required to possess a clients account with any member of the NSEL. The newest
version

of

list

of

such

members

is

obtainable

and

shall

be

downloaded

from

the

link:http://www.nationalspotexchange.com/Memberslist_DP.pdf
Trading in e-Gold may be done from Monday to Friday between 10 am to 11.30 pm.
One can buy e gold by making a phone call to the broker member with whom they have created their
client account or via online trading access made available to them by the broker member, during the
business hours mentioned above.
What is E-Gold?
E-Gold trading is turning out to be an increasingly favored way of investing in gold. Following are
some relevant facts about e-Gold:

E-Gold is initiated by The National Spot Exchange Limited (NSEL) as part of E-series investment
products in commodities which also incorporates e-Silver which enables you to buy gold in electronic
form, and hold it in a Demat account.

E-Gold units, where 1 unit = 1 gram of physical gold, is bought and sold via the spot exchange just
like shares.

There is the alternative to invest in small quantities in demat account, the least being 1 gram of eGold.

There is also the freedom to take physical delivery of gold via the exchange whenever required.

Its preferable over gold jewellery as one does not lose out on any jewellery making costs.

One does not require a locker as e-gold is held in demat form, hence its 100% safe and has lower
holding costs.

E-Gold is 99.9% pure gold and you have the option of purchasing more or selling your e-gold at any
point of time. So, its 100% liquid.

Features/Characteristics of E-Gold:
1. One can purchase and hold minimum of one gram of E-Gold in electronic form.

2. The commission and the transaction costs shall be nearly 0.5%, similar to buying any other ETF from
NSE.
3. E-Gold can be converted into physical gold, which is known as re-materialization and it involves
certain charges. The minimum quantity for converting into physical gold is set as 8 grams.
4. Rematerialisation facility is presently available in 15 major cities and thereby if you wish to convert e
gold to physical gold, do check with your broker.
5. VAT: In case one goes for rematerializing, he is required to pay certain rematerialisation charges
(Nearly Rs.150 for 8 grams), but the VAT might be a bigger amount depending on how much quantity
you hold.
6. The storage charges to hold gold in demat form are Rs.0.60/unit/month.
7. The purity of e-gold is not sanctioned by LBMA and there is no accepted benchmark in domestic gold
prices.
8. You may trade in gold ETFs only till 3.30 p.m., whereas e-gold may be traded till 11.30 p.m., thereby
providing the investors more opportunities as well as flexibility.
Besides E-Gold, the other commodities existing are E-Silver and E-Copper. As no Silver ETFs are
available currently, E-Silver is a better option, if anyone wants to invest in silver. Also, the minimum
quantity is set at 100 grams and the transaction charges are similar to that of E-Gold. One can receive
the live data from National Spot Exchange.
The concept behind e-gold and gold ETFs is the same: Relieving investors of the anxiety and
concerns of storage as well as purity, making gold investment more organised and
hassle free. Though E-Gold is a cost-effective for investors with longer investment horizon, investing
in gold through ETFs shall be more sensible for small investors.