Do you know how electronic gold receipts (EGR) are traded through Gold Exchange in India?

The Union Budget 2023’s proposal to allow the conversion of physical gold into Electronic Gold Receipts is a significant move to promote electronic gold in the market.

The Gold Exchange is a national platform for buying and selling Electronic Gold Receipt (EGR). It is a separate segment for exchange for underlying standardized gold.

EGR is an electronic receipt issued by the Vault Manager approved by SEBI against the gold deposited with them. EGRs allow people to invest in gold from a very small amount and also provide the option of taking delivery. One can also convert their physical gold into EGRs through a registered vault manager. Under this form of gold, the trading exchange holds the underlying value of the receipt of physical gold in a vault. That means investors buy the gold in dematerialised form and are given gold receipts instead of physical gold. The process is similar to the physical form of equity shares.

EGR is notified as a “security” and will be traded on the stock exchange like any other security. The client can trade in EGR online by registering with a stockbroker. Further, the client shall have a trading and demat account for trading in EGR. The buyer of EGRs has the option to trade them further on the exchange platform or convert them into physical gold by surrendering them at the designated vaults. As envisaged by the government, large importers and bullion dealers have to deposit gold in exchange-designated vaults to generate EGRs equivalent to the quantity of gold deposit. These receipts are listed on the exchanges for trading. Hence, the term EGR segment’ is used interchangeably with the term ‘gold exchanges’. People in line of gold business say that EGRs will be a game changer for retail investors and the bullion industry.

How it works?

Individual investors or the bullion industry desirous of creating EGRs will have to place a request for the deposit of the gold with the registered vault manager. The vault manager will ensure compliance with the gold standard, weigh the gold bars, and check necessary documentation at the time of deposit of gold. The vault manager or their authorised person will ensure that the gold is deposited only through an accredited refinery or a nominated agency. Upon acceptance of the gold from the depositor, the vault manager will create an EGR in the name of such depositor as a beneficial owner by entering details in the common interface. The vault manager will have a common interface with the depository for the creation and extinguishment of EGR.

Withdrawal of gold:

The beneficial owner seeking to withdraw gold from the vault will have to place a request with the depository. The depository, after satisfying the payment of charges due to the vault manager, will intimate its approval for the withdrawal of gold to the concerned vault manager. Upon receipt of communication from the depository, the vault manager will hand over the gold and extinguish the EGRs.

The conversion of physical gold to EGR by SEBI registered Vault Manager will be excluded from the purview of transfer for capital gains. Additionally, the cost of acquisition of EGR will be considered as the cost of gold in the hands of a person in whose name EGR is issued.

The list of registered Vault Managers is available on the SEBI website