Physical gold vs gold ETF vs EGR: Which gold investment option are Indians choosing most?
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Electronic Gold Receipts: India’s newest digital gold option
Electronic Gold Receipts (EGRs) are digital certificates backed by real gold stored in Sebi-regulated vaults. They are traded on stock exchanges like shares and held in a demat account. Investors can buy EGRs in sizes ranging from 100 mg to 1 kg. NSE recently launched EGR trading, hoping to expand investor participation in this new gold investment platform.
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How EGRs work and why they are different from Gold ETFs
When you buy an EGR, you become the owner of physical gold stored securely in accredited vaults. Unlike Gold ETFs, EGRs can later be converted into physical gold bars or coins. Investors can buy or sell them during market hours through stock exchanges. This creates a middle path between digital investing convenience and owning actual gold.
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Why it took years for EGRs to reach Indian stock exchanges
Building the EGR ecosystem required major regulatory and operational changes. Sebi had to create rules for vault managers, exchanges, and depositories like NSDL and CDSL. Systems were also needed to ensure every receipt was backed by real gold. Exchanges spent years developing the infrastructure before EGRs finally became available on both BSE and NSE platforms.
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Why Indian investors still prefer physical gold and ETFs
Gold remains an emotional and traditional investment in India, with many buyers still preferring jewellery or coins from trusted jewellers. At the same time, investors seeking simple gold exposure already have Gold ETFs, which are more familiar and liquid. This leaves EGRs in a narrow space between physical gold ownership and paper gold investing, limiting wider adoption so far.
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Biggest challenge for EGRs: Low liquidity and trading volumes
One major issue with EGRs is low trading activity compared to Gold ETFs. Lower liquidity can lead to wider bid-ask spreads, meaning investors may pay slightly higher prices than spot gold. Experts believe this gap could reduce over time if more investors, brokers, refiners, and market makers participate actively in the EGR market.
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Costs investors should know before buying EGRs
Buying EGRs on exchanges does not attract 3% GST, unlike direct physical gold purchases. However, investors still pay brokerage, demat, exchange, vaulting, and storage charges. If you later convert EGRs into physical gold, additional delivery charges and 3% GST apply at redemption. These extra costs can make EGRs less attractive for some investors.
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Tax rules for Electronic Gold Receipts
EGRs are taxed like listed securities. If sold within 12 months, profits are taxed as short-term capital gains according to your income tax slab. If held for more than one year, gains are taxed at 12.5% without indexation. Importantly, converting EGRs into physical gold does not trigger capital gains tax under current rules.
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EGRs vs Gold ETFs: Which option suits investors better?
EGRs combine features of both physical gold and Gold ETFs. Like ETFs, they trade on exchanges and sit in demat accounts. Unlike ETFs, they can be redeemed into actual gold bars or coins. However, Gold ETFs remain simpler, more liquid, and cost- efficient for investors who only want exposure to rising gold prices without handling physical delivery.