E-gold outperforms other investment options
NSEL to facilitate conversion of e-gold, e-silver in demat directly into jewellery items.
E-gold on the Financial Technologies-promoted National Spot Exchange (NSEL) outperformed other gold investment avenues in 2010, due to the least transaction, brokerage and delivery costs compared to other options. Spot gold gave slightly higher returns, but given the risk involved in holding physical gold, many investors preferred to invest in e-gold.
E-gold has offered 23.64 per cent return since its launch in March last year. Other options, including MCX Gold Futures, have offered comparatively less, with Gold BeES and Reliance Gold ETF posting 17.98 per cent and 17.82 per cent returns, respectively. E-gold was launched in April 2010 for investment by small investors who could not buy in bulk.
The avenue has picked up well, with the exchange clocking a daily average turnover of Rs 50-100 crore; on January 19, it recorded its highest turnover of Rs 129.55 crore. Seamless entry and exit, safety and security, zero holding cost, demat statements, convertibility into physical gold, etc, are some of the things that are attracting a large number of investors to this segment, says Anjani Sinha, MD and CEO of NSEL.
NSEL has extended a similar facility for other metals by launching e-series products in silver, copper and zinc. It plans to launch more products during 2011.
Small investors are advised by analysts to follow the principle of a systematic investment plan and accumulate gold or silver gradually, selling only after getting due price appreciation. Gold as an asset class has offered handsome returns of nearly 40 per cent in the past couple of years and investors are expected to continue to get returns in future, too; they should stay invested in commodities on a long-term basis. Investors always earn money in commodities and, hence, retail investors should invest, rather than taking a price call or speculating in the market. Since there is no mark-to-market profit/loss settlement on a daily basis and also no storage cost in holding in a demat account, there is no issue in holding on a long-term basis. The purpose of e-series commodities is to park a small fund from daily, weekly or monthly allocations, so that the investor gets decent returns on a long-term basis.
For physical market participants, bullion dealers, jewellery merchants, etc, normal gold contracts traded on NSEL provide an option where delivery is offered in 1-kg or 100g imported bars. NSEL has launched such contracts for delivery at various locations.
In sum, analysts say, small and retail investors should not leverage their position in the short term, be it in stock or commodities. They should hold with a long-term view. Hence, investors looking at parking their funds in any asset class do not lose money.
E-holding to jewellery
NSEL is in talks with over 100 jewellers across the country to facilitate conversion of e-gold and e-silver in demat directly into jewellery items. This is expected to start by March this year.
"A number of jewellers have evinced interest in this facility. The registration process is on, and will be completed with over 100 empanelled jewellers spread across the country, by the end of the current financial year," said Anjani Sinha, managing director and CEO of NSEL.
Sinha added the facility would benefit small and retail customers immensely in terms of savings in gold and silver jewellery, as such investors preferred jewellery items to coins and bars.
The annual account maintenance charge (AMC) is another area where an e-series has an edge over other competitors, including exchange traded funds (ETFs). Investors have to pay an additional charge between one and 2.5 per cent of an AMC for holding units in ETFs. Therefore, returns diminish. In case bullion prices remain static, investors' asset value shrinks by 1-2.5 per cent per annum.
Trading in e-series, however, attracts a very negligible transaction and brokerage charge, of Rs 5 for trade worth Rs 100,000.
The exchange is chalking out a formula for conversion of pure gold (in demat form) into jewellery of lower cartage. Preferably, each 10g of demat gold would allow consumers to carry 14g of 22-carat jewellery items, or 16-18g of 18-carat hallmark jewellery.
Sinha, however, cautioned that the exchange would not guarantee purity and making charges (the fee for converting a gold item into jewellery), as these fell beyond its purview. Making charges vary depending upon jewellery design and trend. Therefore, that has to be negotiated between clients and jewellers.
NSEL says in future people will prefer to buy and accumulate gold through e–gold instruments, while they will go to NSEL-empanelled jewellers to convert these into jewellery. This will help ensure transparency in pricing.