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Avenues for Trading and Investing in Gold in Demat Form


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You have to choose [as a voter] between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the Government. And, with due respect for these gentlemen, I advise you, as long as the Capitalist system lasts, to vote for gold. -George Bernard Shaw

In view of the global economic slowdown, stock market uncertainty and bleak economic outlook the world over, nations as well as citizens have been constrained to seek avenues for safer investment options. One of these options happens to be gold which has historically been regarded as a store of value.

Ever since Standard & Poor downgraded the credit rating of the US from AAA to AA+, everyone has started looking at gold with renewed interest. Bullion traders, brokers and the media have begun speculating over the price that gold will subsequently touch in the coming months. In case you've been contemplating investing in gold without going through the hassles of dealing with physical gold, you now have the option of trading or investing in the metal in its demat (dematerialised) form.

There are many ways by which you can invest or trade in gold in demat form:

Gold ETF

Gold ETFs are Exchange Traded Funds which are just like mutual fund units. Each ETF unit is equivalent to 1 gram of gold. There are some fund houses that offer half a gram of gold as a unit at a price that is roughly half per unit for the gold ETFs.

Gold ETFs can be traded just like mutual funds through any depository using your regular demat account. The NAV for these ETFs is displayed periodically and the gold in these ETFs is of 99.9% purity. Unlike buying physical gold from the market which is fraught with risk, the purity of ETF gold is always guaranteed.

The other major benefit of Gold ETFs is that, unlike in the case of physical gold, you don't have to worry about the safety and storage of the precious metal. ETFs also offer greater liquidity compared to physical gold which needs to be transported to the buyer when you want to sell it off. Investing in ETFs is also cost-effective and tax-efficient. Last but not least, the tenure for ETFs is just one year for claiming long-term capital gains compared to physical gold which needs to be kept for three years.

Gold Benchmark ETF (GOLDBEES.NS), Kotak Gold ETF (KOTAKGOLD.NS), Reliance Gold ETF (RELGOLD.NS), UTI Gold ETF (GOLDSHARE.NS), SBI Gold ETF (SBIGETS.NS) and Quantum Gold ETF (QGOLDHALF.NS) are the major gold ETFs in the Indian market.

E-Gold

The National Spot Exchange Limited (NSEL) allows investors to buy gold, silver, and copper in electronic form, also known as e-Gold, e-Silver, and e-Copper. More metals are planned to be inducted in future.

You can buy gold from the NSEL in electronic (demat) form. Trading sessions begin at 10:00 AM and end at 11:30 PM, therefore investors can trade at their convenience. You can buy e-gold units, each unit equivalent to 1 gram of 995 purity gold.

You have to open a separate demat account from a list of depositories. The list of depositories is available at the NSEL website http://www.nationalspotexchange.com.

You may choose to sell the e-Gold whenever you want and get paid in cash or you may take delivery in physical form from any of the NSEL-designated centres. Dematerialization centres are currently in Mumbai, Delhi, and Ahmedabad. More will soon be opened in major cities across India.

Gold Funds and Fund of Funds

Gold funds are similar to mutual funds run by a fund house. A demat account is not necessary for investing in gold funds. The NAV of the gold fund is benchmarked against the price of gold. If you don't have a demat account, a gold fund is the ideal option for you. It frees you from the hassles of holding physical gold such as storage and risk of pilferage or theft.

Finally, there's another option called gold FoF (Fund of Funds). These funds invest in various gold ETFs and the NAV is determined by the weighted average of the NAV values of various ETFs that are invested in by the fund of funds.

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