Alternative Investment
Now you can buy commodities in demat form

Designed for retail investors, E-Series is an innovative investment product which lets you buy gold, silver, copper and zinc from NSEL’s pan-India electronic trading platform and have them transferred to their demat account

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.

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COMMENTS

GJain

6 years ago

I have DEMAT account in HDFC bank Ltd. There is no option available for investment in metals in dmat form as offered by NSEL How can I buy gold and silver in dmat form. Please guide.

REPLY

mary

In Reply to GJain 6 years ago

dear GJain,

plz browse thru the NSEL website.
there is a list of members with whom u may open the DP/Dmat a/cs, as per yr choice.

religare, indiainfoline,stock holdg corp of india, rathi etc. etc. are one of many members.

plz remember that yr existing DP/Dmat a/s will not be usable on the NSEL platforms.

ASHOK KUMAR GUPTA

6 years ago

RECENTLY , IN A REKNOWNED NEWSPAPER, I HAVE SEEN AN ARTICLE ABOUT "INVESTING IN SILVER". IN THIS ARTICLE I HAVE READ THAT I CAN INVEST IN SILVER LIKE " E-SILVER". FOR THAT I HAVE TO OPEN A DEMAT ACCOUNT. I HAVE A DEMAT ACCOUNT IN HDFC BANK LTD.

PLEASE , PROVIDE ME THE NECESSARY INFORMATIONS HOW CAN I PURCHASE E-SILVER. I WANT ALL THE NECESSARY INFORMATIONS IN MY EMAIL.

REPLY

R N SINGH

In Reply to ASHOK KUMAR GUPTA 6 years ago

I THINK HDFC BANK IS PROBABLY NOT A MEMBER OF NSEL WHERE E-SILVER IS TRADED IN DEMAT FORM.
YOU CAN ASK YOUR HDFC CUSTOMER CARE. AS FAR AS ICICI BANK IS CONCERNED, IT IS NOT A MEMBER OF NSEL.

mary

6 years ago

good, informative piece.
however, i wonder why other reputed DPs like hdfc,sbi, icici have not opted to join the nsel !

how secure is the nsel?
is it a privately owned body or semi-govt?
where can we get more info about opening nsel demat/trading accounts?

R N SINGH

6 years ago

But Brokers are not trading on NSEL and saying that they are not members. Kindly guide me for Broker.

thomas sabo

6 years ago

REALLY? IT'S IMPRESSIVE

A kumar

6 years ago

Many thanks for such a useful article on the e-commodity products. There are some questions, could you please enlighten us?

(i) Is NSEL registered with the FMC? What is the registration code?

(ii) What is the Tax treatment on the sale of e-commodity products? Do they benefit from exemption from Long term Capital gains tax? If so, what is the long term defined here? Is it one year?

(iii) Does NSEL guarantee that the requisite quantities sold as e-products will be held in secure warehouse? which is the agency which warehouses them?
(iv) How closely do these spot prices track the commodiaty prices? Why is there such a large gap in an e-silver contract and a physical delivery price?
(v) Do the DPs give a booklet for transfer of the demat e-commodities just as they do for stocks or shares?
(vi) Do banks recognize the e-commodities ( such as e-gold) and would be willing to have these as collateral?
(vii) How are sales tax issues handled?


Thanks

REPLY

mary

In Reply to A kumar 6 years ago

good, probing questions, aKumar!

i wonder why there are no responses?

Vikas

6 years ago

Commodity trading is institutionalized gambling. It'll only fuel inflation. Rich will steal money from the poor. Commodity trading does not make any sense at all. It'll be interest of the common man to upper middle class man to not indulge in commodity trading at all. Collective way is the only way to beat this system.

Hosni Mubarak is history in Egypt. What’s next?

A democratic system of government, if it is successful in taking hold in Egypt, will have to deal with many problems created by the old regime. Two of the most difficult will be reducing subsidies and creating jobs

When Hosni Mubarak stepped down as President of Egypt on 11th February, the markets that were still open in the Western hemisphere celebrated with at least a bit of the enthusiasm shown by the people in Tahrir Square. The Egypt Index ETF (Exchange Traded Fund) rebounded by almost 8%, erasing three-quarters of its previous decline.

Although I dislike discouraging any celebration, the markets should perhaps remember the words of Alexis de Tocqueville, "In a revolution, as in a novel, the most difficult part to invent is the end."

This is not the first revolution in Egypt, far from it. The first uprisings in Cairo and Alexandria date from 1882. Then as now, the Egyptian army helped to foment revolution, which only failed after a defeat by the British. The Egyptians tried again in 1919 and again failed. It was not until 1952 that the Egyptians succeeded in installing their own government.
 
Revolutions and regime changes are never as smooth or as beautiful as the idealistic youth who helped create them like to believe. The Communist takeovers in Russia and China ultimately resulted in millions of deaths. The transitions to democracy in the former Soviet Union and in Eastern Europe have certainly been uneven. The theocracy created in Iran after its revolution intends to ensure that the popular uprising, which placed it in power, will not be repeated.
 
De Tocqueville pointed out another truth about revolutions. Contrary to popular belief, revolutions are not the result of dire poverty, but rather, they are the result of rising prosperity.

This is certainly true of Egypt, where reforms begun in 2004 have helped drive growth above 5% for the past few years. Although Egypt is still one of the poorest countries in the world, its per capita gross domestic product recently hit a new high of $3,295.

Still, the promise of growth has not reached very far. According to the World Bank, roughly 20% of Egyptians live below the poverty line and another 20% just above it. A government survey in 2008 showed that four-fifths of Egyptian families earned less than the mean.
 
A democratic system of government, if it is successful in taking hold in Egypt, will have to deal with many problems created by the old regime. Two of the most difficult will be reducing subsidies and creating jobs.

The subsidies in Egypt have to end. Food and energy subsidies eat up to 7% of the gross domestic product and prevent other spending on essential social & infrastructure projects. They also prevent the government from reducing its 8.1% budget deficit-half of which is consumed by energy subsidies. Egyptians presently pay for fuel at prices that are 30% to 75% below international prices.

This has distorted market signals for energy, and has led to the purchase of over 1 million air-conditioners by an emerging middle class. It also acts as an impediment to further development of potential natural gas supplies.
 
The other problem will be to create jobs. Egypt, like other Arab countries, has a very young population with a median age of only 24. While a 10% unemployment rate in the United States is considered a major disaster, it has been the norm in Egypt for much of the past 20 years. Youth unemployment is much higher.

The Mubarak regime used jobs as well as subsidies to hang onto power. It created a huge civil service that employs seven million people, over a third of the workforce, three times the number in OECD (Organisation for Economic Co-operation and Development) countries. Yet, unemployment among college graduates still tops 30%.

To transform this system will require that Egypt adopt major reforms to improve its business environment, including a bankruptcy law, land registration, bureaucratic procedures, a reformed foreclosure framework, cleaning up conflicting regulations and a financial system that makes loans to small businesses easier and profitable.

Making these modifications will be difficult in a country where business is viewed with distrust.

Some feel that a democracy is not sufficient to solve these problems. Ding Gang, a senior editor of the Chinese government's official news outlet, the People's Daily, wrote that the "problem in Egypt in fact is the problem of competitiveness." He felt that a country's competitiveness was the result of "history, traditions, culture and education, closely related to its competitive advantage in the global economy. It can only be internal and cannot be freely chosen, nor could it be reformed through revolution or solved through a change of systems."

In other words, the Chinese are competitive. The Egyptians are not. The form of government does not matter.

Still, despite the messiness of democracy, it does have one redeeming feature that Ding Gang fails to recognise and Mubarak could not accomplish: change. As De Tocqueville points out, "The greatness of America lies not in being more enlightened than any other nation, but rather in her ability to repair her faults."

(The writer is president of Emerging Market Strategies and can be contacted at [email protected] or [email protected])

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