SEBI’s New Investment Landscape in Gold: All You Need to Know About Gold EGR

Gold has long been regarded as a safe investment, serving as a hedge against inflation and stock market volatility. During inflationary periods, when currency values decline, gold often emerges as a reliable refuge for investors. Opportunities to invest in gold include various forms such as physical gold, Sovereign Gold Bonds, Gold ETFs, and the newly introduced Electronic Gold Receipts (EGRs). Let’s explore what this new investment vehicle means for investors.

Gold Demand and Market Context

India’s annual gold demand hovers around 900 to 1,000 tonnes, making it one of the largest gold importers globally. However, the country lacks a liquid spot market for effective price discovery.

To address this, the Securities and Exchange Board of India (SEBI) has introduced a framework aimed at facilitating efficient price discovery for gold, proposing the establishment of a gold exchange.

Key Features of the New Framework

1. What is the SEBI Framework?

   SEBI’s framework allows investors to trade Electronic Gold Receipts (EGRs) on both existing stock

   exchanges and the proposed gold exchange.

2. How Does EGR Work?

• EGRs are issued against physical gold.
• Investors can deposit physical gold in SEBIregistered vaults and receive EGRs in return.
• Vault managers also registered with SEBI, will oversee storage and issuance.
• EGRs come in denominations such as 1 kg, 100 gm, and 50 gm, and possess perpetual validity.

3. Role of the Proposed Gold Exchange

   The gold exchange aims to create a national platform for trading EGRs backed by standardized gold. Its goals include:

•     Establishing a national pricing structure for gold.
•     Enhancing market efficiency and transparency.
•     Improving liquidity and ensuring gold quality assurance.
•    Existing and new stock exchanges will also allow trading in EGRs, with flexibility in determining gold denominations.

4. Who Bears Storage Costs?

Holders of EGRs will be responsible for storage charges, which may make EGRs more costly than storing gold at home. However, EGRs mitigate security risks and allow for geographical flexibility—gold can be deposited in one city and converted into EGRs while receiving equivalent gold elsewhere.

5. Taxation of EGRs

EGRs will be classified as securities under the Securities Contract Act and will incur Securities Transaction Tax. Goods and Services Tax (GST) applies only when converting EGRs back to physical gold, offering an advantage over physical gold or digital gold, which face a 3% GST.

Advantages for Investors

Investors in India will now have a wide range of options for gold investment, including:

•  Physical gold
•  Gold ETFs
•  Gold fund of funds
•  Sovereign Gold Bonds (SGBs)
•  Digital gold

Overall, EGRs present several benefits:

•  Unified Pricing: A “one nation, one price” system for gold.
•  TechnologyDriven Marketplace: Enhanced trading capabilities backed by technology.
•  Exchange Trading: EGRs can be traded on exchanges like other stocks and securities.

The introduction of EGRs and the proposed gold exchange represents a significant advancement in the gold investment landscape, offering enhanced transparency, efficiency, and a broader range of investment options for Indian investors.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.