CHENNAI: The National Stock Exchange (NSE) is betting that electronic gold receipts (EGRs) could do for India’s vast physical gold holdings what mutual funds did for equity investing - bring a traditionally fragmented market into a more organised, accessible financial system.
Sriram Krishnan, chief business development officer, NSE, who was in Chennai on Saturday as part of the exchange’s IPO roadshow, said EGRs could unlock a huge pool of gold lying with households, temples, investors and jewellers. “We have about 25,000 tonnes of gold with individuals and maybe another 25,000 tonnes in temples. If we can dematerialise the gold and convert it into EGR, then that EGR can be traded on the exchange,” he said.
The EGR will represent standardised gold after the metal is deposited at authorised collection centres and tested for purity and authenticity. It can then be held in a demat account, traded, lent or used as collateral, while investors can surrender the receipt to take delivery of the underlying gold.
“When you buy gold, you pay 3% GST, but when you buy and sell EGR, there is no GST because EGR is a security,” Krishnan said. For jewellers, he said, EGRs could also free up working capital. Instead of buying and holding a kilogram of gold that could take months to consume, a jeweller could buy smaller quantities of EGRs and convert them into physical gold as required.
The NSE expects interest from asset managers, family offices and jewellers. Gold ETFs alone hold around 150 tonnes of gold, which could potentially move into the EGR ecosystem, Krishnan said.
“EGR will become a very popular instrument in times to come,” he said.
The exchange sees a similar evolution in sophisticated products such as futures and options (F&O). Responding to concerns over regulatory measures aimed at curbing retail F&O trading, Krishnan drew a parallel with the rise of mutual funds.
In the late 1980s, retail investors participated directly in equities, but after suffering losses, mutual funds emerged as a professionally managed route. “Today, most Indians go through mutual funds,” he said.
He expects Sebi’s new Specialised Investment Funds (SIFs), with a Rs 10 lakh entry threshold, could eventually provide a similar route for investors seeking F&O exposure.
“Somebody will slowly, I think, encourage people to go through the SIF route instead of going directly to the F&O market and burning their fingers,” he said.
These insights come ahead of NSE’s proposed IPO, a 100% offer for sale, with an issue size of Rs 22,561 crore at the upper price band of Rs 1,785 a share. Anchor bidding is scheduled for September 16, with the issue opening on September 17 and closing on September 21.