An individual can buy gold from Bombay Stock Exchange (BSE) and Multi Commodity Exchange (MCX) through their demat account provided Electronic Gold Receipt (EGR) and Commodity segment respectively is activated on the individual's demat account

2 types of gold that can be bought from BSE, MCX with physical delivery option There is also an option to take physical delivery of gold from both BSE and MCX

Dhanteras: Here's a look at how precious gold shined in the long-term!It is considered auspicious to buy gold, silver, copper, or wheat (dhan), or utensils, etc., on Dhanteras. If an individual wants to buy gold in paper form, then one can buy it from the Bombay Stock Exchange (BSE) and Multi Commodity Exchange (MCX). One can also get physical delivery of these gold products bought through BSE and MCX. Do note that there is no gold buying facility available on the National Stock Exchange (NSE).

The purity and legitimacy of gold physically bought through BSE and MCX are guaranteed by the respective exchanges. The legitimacy of gold means that gold bought through BSE and MCX is certified by the London Bullion Market Association (LBMA).

An individual can buy Electronic Gold Receipts and gold from MCX via their active trading and Demat accounts. Earlier one could buy e-gold from the National Spot Exchange Limited (NSEL). However, this facility has been stopped after the government's order.

Here is a look at what this type of gold is, how to buy and other factors one must keep in mind when investing in Electronic Gold Receipts.

Electronic Gold Receipts (EGR) from BSE

On October 2022, BSE launched EGR trading through its exchange to facilitate investor's desire to trade and hold physical gold through demat accounts. Each EGR is backed by actual physical gold held at SEBI-authorised vaults.It is important to note that EGR is not the same as digital gold.
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"Digital gold investing is done through various apps and involves using market aggregators like MMTC-PAMP. This form of gold allows you to hold gold without a demat account. However, for products like EGRs where you can buy gold online and store it in your demat account, are an stock exchange product which is BSE in EGR's case," says Sunny Ahuja, Vice President- Head Products & Platforms, m.Stock by Mirae Asset Capital Markets, a stock broker.

Also read: How to buy physical gold coins and bars through MMTC-PAMP website

However, like digital gold, investors can either convert EGRs into physical gold or can sell it on BSE when the stock market is open. "The buyer can continue to hold the EGR in Demat account for further trading or take the physical delivery of gold from the Vault Manager by putting in a request to the depository. EGRs can be held in demat account for indefinite period," says Naveen Mathur, Director - Commodities & Currencies, Anand Rathi Shares and Stock Brokers.

How to invest in EGR: According to FAQs issued by the Securities and Exchange Board of India (SEBI) on EGR, investors can trade in EGRs only if they separately apply for opening an EGR segment account with their stockbroker.
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"When we open a stock trading cum demat account, we activate trading in in the cash and derivative segments. Similarly, investors need to go to their BSE-registered broker to activate EGR segment in their trading cum demat account. Once EGR segment is activated, investors can trade EGR units just like they trade stocks or securities on BSE," says Sidhavelayutham M, Founder and CEO, Alice Blue, a stockbroker.

Once EGR segment is activated, an investor can search for these symbols in the trading cum demat account (just like stocks) to buy it. If the EGR segment is not active in the investor's trading account, EGRs won't be visible despite typing its trading symbols. An individual will be required to undergo a partial KYC process to activate the EGR segment.

Denominations available to buy EGR: EGRs are available in specified denominations of 100 milligrams, 1 gram and 10 grams Apart from these denominations no other denominations are allowed to be bought. BSE offers six EGRs with the following symbols: MG100G1B95 (100 milligrams), MG100G1B99 (100 milligrams), G1G10B95 (1 gram), G1G10B99 (1 gram), G10G100B95 (10 grams), G10G100B99(10 grams). The 95, 99 mentioned at the end of EGR denotes the purity of the gold in fineness terms i.e., 995 and 999, respectively.

Even though the denomination of one unit of EGR starts from 100 milligrams, an individual cannot buy just one unit of such EGR. There are rules applicable on buying a minimum of one unit of EGR for each of the six EGRs.
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For EGR having trading unit of 100 milligrams, the minimum buying and selling quantity is 1 gram. 1 gram is equal to 1000 milligrams. So, an individual needs to buy 10 units of EGR MG100G1B95 in order to have 1 gram of gold.

Similarly, for EGR having trading unit of 1 gram, the minimum buying and selling quantity is 10 grams. So, the individual needs to buy at least 10 units of EGR. All the EGRs each have their own specified minimum buying and selling requirements.

BSE EGRSource: BSE Website

Price of EGR: The price of one unit of EGR will reflect the day's spot change in the price of physical gold of 995 and 999 purity. It can be considered the same as buying physical gold from a jewellery store.

How to get physical delivery of gold against EGR: As per a SEBI circular dated January 10, 2022, investors who are buying EGRs on stock exchanges are called beneficial owners. Such beneficial owners need to submit a delivery request application for taking physical delivery of gold. It has not been specified how long will the physical gold delivery take. Stockbrokers say that the delivery timeline is dependent upon the quantity required for delivery and logistics and operational timelines of the respective vault company.

Depending upon the type of EGR contract bought the purity will differ. For example, MG100G1B95 EGR can be used for getting 995 purity physical gold. G10G100B99 can be used for getting 999 purity physical gold.

"SEBI has allowed Inter-operability between Vault Managers. This means that physical gold, against the EGR, can be withdrawn from different location of the same or different Vault Manager (depending on the availability of physical gold)," said SEBI in an FAQ of EGR.

Storage cost: The storage charge is Rs 15 per day per kilo of gold. Vault managers will levy storage charges. Handling and logistics charge would be dependent upon the storage vault from where the individual is taking the delivery of the gold.
"The storage charges will be collected by the Depository through the Depository Participants (DP), for onward payment to the Vault Managers," said SEBI in an FAQ of EGR.

Income tax rules: As per a Budget 2023 amendment, conversion of physical gold to EGR will not attract capital gains taxation. However, capital gains taxation would apply to EGRs on sale of gold units. Long-term capital gains taxation is applied if an EGR is held for more than 12 months. If it is less, then short-term capital gains taxation rate will apply.

Gold bought through MCX

MCX has various types of gold futures contracts which an investor can buy and then take physical delivery at designated MCX-approved delivery centers on expiry of the specific contract bought. One must physically visit the MCX-approved delivery centers to take delivery of the gold. The full list of the delivery centers can be found here: https://www.mcxindia.com/market-operations/warehousing-logistics.However, buying gold through MCX requires 'Commodity' segment trading account activated in the individual's demat account.

Gold contracts available on MCX: Four gold contracts are available on MCX - Gold (1Kg), Gold Mini (100 gram), Gold Guinea (8 gram) and Gold petal (1 gram). These gold contracts have a definite expiry time. On expiry, investors holding all such contracts would have to mandatorily take physical delivery of the underlying gold quantity.

The purity of all gold bought through MCX is 999 fineness. As per the FAQ section on the MCX website, a buyer of such gold contract cannot refuse physical delivery of gold on expiry, and a seller can't refuse to sell the gold. If either buyer or seller fails to fulfil their obligations, penalties will be levied by MCX.

If any member (buyer or seller) fails to fulfil their obligations, then a penalty will be levied by the clearing corporation on the buyer and MCX on the seller, whosoever refuses the obligation. The penalty levied by the clearing corporation on the buyer is dependent upon the amount of shortfall in payment. MCX levies a penalty of 0.25%, and 1%, and 1.75%, and 3% of the contract's settlement price plus replacement cost and others on the seller.

How to buy gold from MCX: The trading symbols for the above stated gold contracts are - Gold (1Kg)- 'GOLD', Gold Mini (100 gram)- 'GOLDM', Gold Guinea (8 gram)- 'GOLDGUINEA' and Gold Petal (1 gram)- 'GOLDPETAL'. The minimum buying quantity for the gold contracts on MCX is 1 unit. Like for Gold (1 Kg) is 1 unit minimum which is the price of 1 Kg of gold. For Gold Petal (1 gram), the minimum buying quantity is 1 unit which is the price of 1 gram of gold.

Investors who want to buy gold contracts from MCX can search for the trading symbols mentioned above.

MCX Gold PetalSource: MCX website on November 7, 2023 17.50 hours.

"All variants of Gold futures contract on MCX (Gold, Guinea, Petal, Mini) are physically settled with physical delivery to be taken place only during tender period of around 5 days ahead of the specific gold contract's expiry date," says Mathur.
"Do note that one has to collect the physical gold from their nearest MCX approved warehouse and pay for the warehouse related charges too," says Sidhavelayutham M.

Charges for physical delivery of gold bought through MCX: If an investor takes delivery of gold, GST at 3% has to be paid by the buyer over and above the MCX settlement price.

Further, there are making charges involved as well. For Gold Guinea making charge of Rs 200/8 grams and for Gold Petal making charges are Rs 100/1 gram is applicable. Making charges are levied by MCX for converting demat-held Gold Contracts into gold bars, petal, etc. It is a charge which is to be paid for using the conversion services of MCX.

There is a warehousing charge of Rs 35 per day per kg of gold Guinea and Gold Petal, handling and logistics charges are dependent upon the location of the buyer and the warehouse where the gold is being stored.

It is advisable that an investor taking a physical delivery of gold bought through MCX enquire with his/her stockbroker about the exact quantum of charges.

Price of gold buying from MCX: Buying gold from MCX is different than buying gold via EGR. In MCX, an individual is buying a future contract for gold. Buying a future contract means that the individual is paying a fixed sum of money now to lock the price today. Delivery will take place at a later pre-determined date. On the date of delivery, the actual price can be different from the contract price, however, the investor won't have to pay the new price.

Income tax rules: Income tax is not levied when an MCX gold contract is converted into physical delivery of gold. But if an MCX gold contract is bought but sold off before the gold contract's expiry date, income tax rules would be applicable. It can either be classified as income from business or profession or short-term capital gains.
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This story originally appeared on: India Times - Author:Faqs of Insurances