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Should You Redeem Investments in E-Series Products of NSEL Exchange?

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Operations of National Spot Exchange Ltd (NSEL)

Nsel e seriesNational Spot Exchange Ltd (NSEL) is the national level electronic spot trading platform for commodities.  It facilitates hassle-free purchase and sale of various commodities with its technology and trading platform. It provides customized solutions to farmers, traders, processors, exporters, importers, arbitrageurs, investors and other stake holders, pertaining to commodity procurement, storage, marketing, warehouse receipt financing, etc.

Launch of E-Series Products

In March 2010, NSEL launched e-series investment products. E-series products were launched to target small investors to invest in physical commodities like gold, silver, platinum, etc. in smaller denomination in demat form. First product launched under e-series umbrella was e-gold and expanded offerings to seven e-products under its umbrella. These products are gold, silver, platinum, copper, zinc, lead and nickel.

Awareness of E-Series Products through Advisors and Media

In a span of 3.5 years, most investors are holding at least gold or silver in electronic (demat) form with NSEL. We were thanking our advisors and media for recommending investment in e-series as a safe and cheaper investment option in gold / silver. There was knowledge sharing on regular basis through articles / interviews on investment options in gold/silver which highlighted e-series as best option to invest. Small investors had opted for systematic investment plan (SIP) to invest in these products. In H1FY13, the average daily turnover in the e-series segment was around Rs100-200 crore.

Crisis hit National Spot Exchange

In first week of August 2013, government banned trading in e-series contracts of NSEL as the exchange had to settle about Rs 56 billion dues to investors. Though this halt in trading is temporary, retail investors are in panic and are looking for options to exit from e-series investment products.

Options available for Investors in E-Series Products after ban in trading

After a halt in trading of these products, exchange has suggested two options to safeguard investor’s interests in e-series products. Those two options are as follows:

  • Apply at exchange and get them converted into physical gold, silver or products you have invested in.
  • Hold the units in demat form.

Procedure of Withdrawal / Converting E-gold products into physical delivery

Most investors have decided to discontinue with their SIP option and opted to convert the investment into physical delivery. NSEL allows converting gold units into physical gold coins or bars. Investors have to check conversion rate, which is as applicable for physical delivery. The conversion charges are Rs 200 for one unit of 8 gram and one unit of 10 and Rs 100 for conversion in 10 gram coins. However, there is no conversion fee for 1 kg gold bar. Investors also have to pay 1% of value added tax (vat) and octroi charges in physical delivery.

Steps involved in converting e-gold into physical are as follows:

Step 1: Submit delivery instruction for sale (DIS) to your depository participant (DP)

Step 2: Submit the surrender request form (SRF) specifying the centre from where you opt to take the delivery

Step 3: Email scanned copy of DIS and SRF to the exchange at NSEL-DP@Nationalspotexchange.com and DP transfer units to the exchange

Step 4: NSEL computes making & packaging charge, VAT, octroi and communicates to you

Step 5: Pay due amount and charges as communicated to you by DD/cheque in favour of National Spot Exchange Ltd

Step 6: You will get the physical delivery of your gold, silver etc. after 7 days and within 15 days of submitting transfer request form

Note: You will be liable for short term-capital tax at the slab rate if investment was less than 36 months and long-term capital tax at 20% if investment was held for over 36 months.

Holding the E-Series units in demat

Currently, exchange is allowing investors to hold their investment in demat form. So, there are some investors who continue to hold the units in demat form and are waiting for trading to resume in a few days. Also, it’s expected that government will intervene and back the investors in this scenario.

Should you hold or convert in physical form?

When e-series products were launched, no advisors / investors had expected an exchange operating on national level to face a liquidity crunch in future to pay off dues and that trading will be at halt for these products. Current scenario is against the operations of the exchange, so in near term we don’t see any silver lining for investors. So, it’s recommended to exit from this investment avenue with physical delivery. Also, option of physical delivery or holding in demat form is dependent on risk capability of investors and goals. If you require gold in short term then take an exit with physical delivery by converting units or hold on till further developments in operations of NSEL exchange and save on VAT, octroi, packaging charges, etc.

About the Author

Hiral Thanawala is a PGDM (Finance) graduate and Certified Financial Planner with an experience of over 5 years in equity market and personal finance domain. The views explained by him are personal. He can be reached at expert@investmentyogi.com

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