The National Spot Exchange Ltd (NSEL) has launched what is called as 'E-Series' products, through which you can buy commodities and hold them in a demat form.
The E-Series currently lets you buy gold, silver, copper and zinc. Retail customers can buy these from NSEL's pan-India electronic trading platform, like they invest in equities from the stock market and have them transferred to their demat account.
E-Series is available on the order-driven electronic trading platform, where investors are allowed to quote their own buying and selling price. The same price is available across the country and so, the buyers or sellers from anywhere in India can buy and sell at this price.
The impact cost (difference between the 'buy' and 'sell' quote) is as low as one rupee. The price quoted on the screen is the actionable price at which investors can buy or sell. This ensures transparency of pricing.
An investor can convert e-gold into physical form too. He has to apply for remat through the depository participant, and once remat is confirmed, he can submit the remat slip and take delivery of the gold. The time taken for this is generally three to four days.
The E-Series products track the respective physical commodity prices. Retail investors can invest in them in smaller denominations-like in systematic investment plans-on a daily, weekly or monthly basis.
Are these products useful? Yes they are.
Take a look at the comparison between E-series gold and gold exchange traded funds (ETFs), which is another option of buying gold in a non-physical form.
One, since E-Series tracks physical prices of gold, it is easer to understand, rather than the net asset value (NAV) of a fund in the case of gold ETFs.
Two, there are no custody charges applicable for holding these products in demat form, while in the case of gold ETFs, one has to pay around 1%-2.25% per annum.
Three, there is no asset management charge (as in the case of gold ETFs) either, and hence returns are higher in e-gold over gold ETFs.
Finally, E-Series also scores because other than gold there are no ETFs available for any other metals.
According to NSEL, commodity exchanges provide good instruments for trading, hedging, price-risk management, speculation or jobbing, but they do not provide instruments for investment, wealth creation or wealth preservation.
Leveraged trading may be good for traders, but it may be detrimental to the interests of the general mass of investors, who may burn their fingers due to price volatility. But E-Series creates an investment opportunity for retail investors.
Anjani Sinha, managing director and chief executive officer, NSEL, said, "E-Series products are taxable as any other electronic holding of a commodity. If one buys or sells these products within three years, then there would be short-term capital gains taxes (applicable). After three years, long-term capital gains tax will be levied on the gain."
To trade and invest in E-Series, an investor has to enroll with a member of NSEL and open a demat account with a depository participant (DP) empanelled with NSEL. Thereafter, one can participate in these contracts, either by making phone calls to the broker or directly through online trading terminals.
Again, a DP minor account is possible and can be credited with E-Series products. The DP normally has an annual maintenance charge and transaction charges on all debit instructions.
An investor holding a demat account for equities has to open a separate demat account for NSEL. However, if one has a demat account opened for MCX trading, the same account can be used for NSEL. An investor can buy and sell demat units during market hours (Mondays through Fridays between 10am to 11.30 pm) through a member of the Exchange.
Dematerialisation of a commodity implies storage of commodities in Exchange-designated vaults/warehouses and keeping a record of its ownership in an electronic form. The owner of the product gets a credit in his account electronically-which is like holding a pass book with a bank. Transfer of ownership against 'buy' and 'sell' transactions is done from one account to the other, just like money transfer through a cheque.
The DP keeps the records of holding and transfers in electronic form. Opening of an account and transfer instructions are also carried out by these DPs.
Currently, NSEL is connected with 53 DPs. Some of the current empanelled DPs include Globe Capital Market, Karvy Stock Broking, Religare Securities, Goldmine Stocks and Aditya Birla Money, among others.
In case of physical delivery, a person gets a warehouse receipt in paper form, while in case of delivery in demat form, he gets a credit entry in his demat account. One can take physical delivery of goods against surrender of demat units at any point of time.
NSEL delivery centres are at multiple locations. The settlement period for E-series products is T+2. Under T+2, funds are collected from buying members, transferred to the selling members and demat credit is transferred from selling members to buying members. Funds and delivery pay-in is at 1pm and pay-out at 5.30pm.
NSEL is also working to make E-Gold fungible with retail jewellers located in different parts of the country, to create an alternative to the delivery centres. Clients having E-Gold can transfer it and get 100gm of physical gold and pay the making charges.
E-Series products are ethical instruments confirming to the standards of Islamic Finance Law and are compliant with the Shariah. There are more than 50,000 accounts opened for investment in E-Series products. Owing to their transparent pricing, seamless trading and zero holding costs, these products are proving to be a very attractive investment option for small investors and a good instrument for portfolio diversification by high networth individuals (HNIs).
NSEL plans to launch similar trading facilities in about 20 non-perishable agri-commodities by the end of calendar year 2012, which include black pepper, menthol, castor and guar seed.
The turnover of E-Series products has increased from Rs198 crore in September 2010 to Rs9,268 crore in January 2011.
source:http://www.moneylife.in/article/now-you-can-buy-commodities-in-demat-form/13901.html
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