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ABSTRACT
The digital innovations in the financial sector specifically banking and capital markets (e-banking, online trading, depositories, commodity trading to name a few) elevated the banks to get more closer to customers and conduct business beyond international standards. This article seeks to understand the intricacies of e-Gold (Electronic Gold) and how it can meet or exceed the safety and investment standards of buying physical gold or Exchange Traded Funds (ETFs) or in the form of jewellery. The story of gold is as rich and complex as the metal itself. It is seen as a safe investment and sometimes sacred too. The depository concept (otherwise called Demat) brought in a new way of conducting business in the capital market and went on to become a pride for the Indian financial system. E-series gold also uses depository as the fundamental basis and is currently in infancy stages. While volumes are growing, there is an urgent need to educate the investing community given that India is the No.1 gold market globally. Support from regulatory authorities by strengthening rules will build investor confidence in this concept. Keywords: Commodity, Dematerialization, Gold Investment,
I. INTRODUCTION
This paper attempts to bring out the concept of electronic gold and how it can benefit the vast section of students and investor community. Gold is a much sought after commodity in the international market and is looked as a hedge instrument against the fluctuating securities markets. A larger section of the investment community also identifies gold as an effective investment to protect against inflation as well. Fact of the day is banks extend safe keeping facilities (i.e. locker) to customers who maintain multiple relationships viz. Fixed Deposit, Savings / Current account with them.
* Senior Executive (Director-Products), Cognizant Technologies Ltd., Singapore ** Professor & Head, Department of International Business, School of Management, Pondicherry University, Pondicherry -14.
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portfolio that withstands market fluctuations. A living example is the Indian Republic when foreign exchange reserves in 1991 had depleted to a large extent with reserves enough to last for roughly 3 weeks of essential imports. The Indian government pledged 67 tonnes of gold as collateral to secure an emergency loan of USD 2.2 Billion from the International Monetary Fund and thus subverted a major economic crisis of defaulting on external balance of payment obligations. What happened subsequently is history. Today India is a global market and multinationals queue up to set up businesses in India. On the retail front, almost every Indian has a little of gold. Since ages, gold is considered as a traditionally auspicious gift for any occasion. While gold business is shining very brightly, reality of the day is much of the retail gold in India lies idle in various banks safety lockers, in ones home and to some extent pledged with funding entities (Banks, Financial houses, and pawn brokers). Banks and financial houses are delighted to disburse loans with gold as a collateral given the minimal risk and liquidity involved in it.
V. COMMODITY MARKET
For the benefit of the commodity traders to give them wider access to the pricing market and for investors who want to diversify their portfolio beyond Equities,
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Bonds, and real estate, Commodity Exchange was set up in the country. Similair to The Chicago Board of Trade (CBOT) established in 1848 (worlds oldest futures and options exchange), 3 commodity exchanges were setup in India. Multi Commodity Exchange of India Ltd (MCX) and National Commodity & Derivatives Exchange Ltd (NCDEX) are the 2 biggest exchanges and compete against each other for market share. Key products of Cereals and Pulses, Spices, Plantation products, Oil and Oil Seeds, Metals and Energy are actively traded in these exchanges.
Does not exist as everything in demat form Easy Owned by the account holder
Does not exist as everything in demat form As per the fund houses policy Owned by the Fund house
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In India, National Spot Exchange Limited (NSEL) has introduced E-Series products in commodities. Retail Investors can now Buy / Sell precious metals (Gold, Silver, and Copper etc) in a fashion very similar to that of equities. One of the biggest advantages is that one can buy in small denominations. An investor needs to open an account for buying / selling these E-Series products and the process to open & trade is very similar to that of equities.
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Source: http://www.nationalspotexchange.com/Sitepages/MarketMaster/Bhavcopy/Commoditywise
XI. SUMMARY
This paper discusses at a high level about the benefits of e-Gold in the Indian market with intent to educate students, investors and keep them updated about the level of innovation happening in the market and how technology is being effectively used. NSEL is on an aggressive marketing campaign to increase awareness of this product amongst the investor community. The hesitation from the investor is quite understandable since its a complete mindset change. It is a fact that this hesitation is common across all investor classes
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including High Net worth Individuals and NonResident Indians. The recent regulation from RBI that Non-Banking finance companies which are engaged in giving loan against physical gold will not be allowed to lend more than 60% loan-to-value, has created quite a stir in the credit market. A few regulations from RBI around the e-series products combined with the banking sectors support favouring e-series funding over physical gold could potentially make the e-series products a huge success just restricted to gold. Given that gold is deeply embedded in the Indian society as a status symbol and often displayed as a heritage and traditional value, for the investor to get a Statement of Account accepted in the same manner will be a unique achievement. Such new products may become part of Portfolio / Wealth management services and hence definitely a niche area for students and investors to consider.
XII. REFERENCES
[1] ASSOCHAM (2011), Moving up the Business Value Chain, Emerging role of commodity and currency markets, Ernst & Young
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[2] National Spot Exchange (2012), E-Series Investment product in commodities [3] National Stock Exchange handbook (2012), Smart way to invest in Gold [4] Shobhana Chadha (2011), Is e-gold better than ETF? Economic Times Bureau [5] A collection of articles from various Investment journals about wealth management, mostly from the 2012.
[6] February 07, 2012 <https://nsdl.co.in/about/ legal.php> [7] February 09, 2012 <http:// w w w. n a t i o n a l s p o t e x c h a n g e . c o m / resource_centre.htm?m=8> [8] February 20, 2012 <http://www.gold.org/ jewellery/markets/china/> [9] March 12, 2012 < http:// www.nationalspotexchange.com/ eseries. htm?m=3>
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