Investors can take delivery or wait
With the government banning the e-series on NSEL, investors are likely to be stuck for some time.
Yogini Joglekar, Business Standard 6/8/2013
The ban of the e-series contract on the National Spot Exchange could put retail investors, who were betting on commodities, in trouble. The e-series contract was targeted towards small investors who could buy small quantities even up to one or two grams of their preferred commodity.
One could also use the systematic investment plan (SIP) route to accumulate gold or silver over a longer period of time. There was the option of getting these goods delivered to jewellers when one wanted to convert it into jewellery.
But after the government’s decision, which many experts say is a temporary one, retail investors who have been using this route to save gold will find themselves in trouble. According to experts, one option for them is to take delivery of the commodity and then, sell it in the market. It is quite a cumbersome process because taking physical delivery of gold or silver might not be huge in quantity but it is a risk that retail investors may not want to take. On the other hand, one may look at waiting out the tough period.
Unless the ban is revoked soon, SIP investors will find that their instalments aren’t going through. Chintan Modi, head of commodities at India InfoLine says, ‘It is the investor’s choice to either wait or discontinue the plan.’
At present, NSEL allows converting gold units into coins or bars of 8, 10, 100 gm and one kg. It charges Rs 200 each for conversion of 8 and 10 gm coins, Rs 100 for 100 gm and no charge for one-kg bar. You will also have to pay a value-added tax at one per cent and Octroi for conversion of electronic units into physical coins (for Mumbai = 0.1 per cent). Taking delivery of investments held in e-series can prove to be a tad expensive due to its various fees and charges.
For instance, one can take delivery in the form of coins, available in eight and 10, 100 grams or one kg at a cost of Rs 200, plus one per cent value added tax (VAT). Here, gold is bought in electronic form, and held in a demat account with an exchange empanelled depository participant. One unit of e-gold is equal to one gram of physical gold. One has to pay annual maintenance fee towards their Demat account which is in the range of Rs 400 and Rs 500. Since, the exchange has various delivery centers across India, Octroi charges (on delivery) will also have to be borne by the investor himself. The octroi charges will differ from city to city.
Hemant Rustagi of Wiseinvest says, ‘While e-gold is flexible and convenient to invest in, it is not as tax-friendly as gold ETFs.’ One can buy as low as one gram in products of E-series and one can do so even after the market hours However, it has its flip side too. ‘There is no long term capital gains tax if a person stays invested in e-series for 24 months, whereas the same benefit is available in gold ETFs and Gold savings plans right after 12 months.’ In addition, gold ETFs are not subject to wealth tax, unlike in case of E-gold.