Worried -- and even confused -- about investment options with the currency markets being volatile and the gold prices rising? Well, if you are looking at buying and holding gold without the hassle of safe-keeping and high costs, you may explore the option of gold trading in dematerialised (demat) form.
Last month, the World Gold Council (WGC) and the Mumbai-based Multi Commodity Exchange (MCX) launched a gold product that can be settled within seven days (T+7).
The investor can purchase either 100 gm of gold, or 1 kg bar of gold (at a price of Rs 6,500 per 10 gm of gold, the cost would be Rs 65,000 for 100 gm and Rs 650,000 for 1 kg), which is approved by the London Bullion Markets Association (LBMA), and is imported into the country.
Every transaction takes place between Wednesday and Tuesday. At the end of the period, the investor can either make the payment and take delivery directly, or create a separate commodity demat account, and hold the gold for the desired period of time.
A commodity demat account can be created exactly in the same manner as an equity demat account. The prices are also closer to the spot market, as the settlement is made taking the day's prevailing price into account (Tuesday).
The cost involved, for the investor, includes a margin charge -- working out to 5 per cent of the value currently -- that they have to pay upfront, and a brokerage charge of no more than 0.5 per cent. In other words, at a cost of Rs 6,500 per 10 gm, the investor would have to pay a margin charge of Rs 3,250 plus brokerage charges.
Besides, the custodial insurance works out to 1 per cent per annum of the price. It is calculated on a weekly basis and billed every month. This works out to be lesser than the charges of safety vaults in banks. Currently, the custodian is National Securities Depository Ltd.
The contract ensures delivery at the end of the period, and in case the investor wishes to defer taking the delivery, then they can transfer the gold into the demat account, which is as good as settling the contract by paying the entire cost.
The advantage of transacting in demat gold lies in the fact that both buying and selling, in this process, are convenient, as compared to purchasing gold from a bank, in which case it cannot be sold back to the bank.
The price is also closer to the spot price than in case of the regular futures contract that the exchanges offer.
Currently, delivery centres are there in Delhi, Mumbai, Kolkata and Ahmedabad, and the number of such centres will be expanded to 12 in the next two months. In comparison, deliveries of the gold futures contract takes place only in Ahmedabad and Jaipur.
Since the launch of the product, 200 kg of gold has been traded (two-sided), and 35 kg has been successfully delivered.