NSE pushes EGRs amid Modi’s caution against buying gold; should you invest in them?

Prime Minister Narendra Modi's recent advisory on spending patterns, including a caution against buying gold, has sparked a wider discussion on how Indians should approach gold investments.

While physical gold consumption remains deeply rooted in India, new financial products are being promoted as alternatives.

Modi recently suggested work-from-home options, limited foreign travel, and even avoiding gold purchases. The advice surprised many, given that India is the world’s largest consumer of gold. However, the guidance primarily targeted physical gold purchases, not financial exposure to gold as an asset class.

At the same time, the National Stock Exchange (NSE) has introduced a new product called Electronic Gold Receipts (EGRs), designed to allow digital ownership of physical gold stored in secure vaults.

Gold shift push

EGRs are being positioned as a modern way to invest in gold without holding it physically. Unlike jewellery or bullion, investors can buy and sell gold digitally while still owning underlying physical gold stored in regulated vaults.

But should you invest in EGRs? The NSE has positioned them as a modern alternative to holding physical gold.

Also read: Gold demand drops 70 pc; here’s how buyers are adapting to record prices

EGRs function as digital certificates representing actual gold stored in SEBI-approved vaults. When an investor buys an EGR, ownership of real gold is credited to their demat account, similar to shares.

The gold belongs to you. Vault managers cannot use it or pledge it.

The system is backed by depositories like NSDL and CDSL, which match physical gold with digital receipts daily. Investors can also take physical delivery of gold if needed.

Tax and other benefits

EGRs come with several investor-friendly features.

First, they eliminate concerns like making charges and purity issues that typically come with physical gold purchases.

Second, investors can buy in very small quantities, making it more accessible.

Also read: How Electronic Gold Receipts let you invest in pure gold

Third, with EGR, you have the legal right to take physical delivery of gold whenever you want.

Another key benefit is taxation efficiency. Converting physical gold into EGRs and vice versa does not attract capital gains tax. Tax is applicable only when EGRs are sold on the exchange.

Liquidity concern

This is not the first attempt at introducing electronic gold products in India. The Bombay Stock Exchange (BSE) had launched a similar EGR segment in 2022 during Diwali Muhurat trading, using the same regulatory framework.

However, trading activity has remained limited despite the structure being in place.

One of the biggest concerns around EGRs is liquidity. Without active participation from brokers and investors, trading volumes remain low.

Low participation leads to wider bid-ask spreads and difficulty in exiting positions smoothly, making it less practical for some investors.

Also read: What India's 15 pc gold import duty hike means to you, the consumer

Due to these limitations, EGRs may not be suitable for all types of investors, especially those seeking high liquidity or simple investment tools like mutual funds or SIPs.

For most retail investors, gold ETFs currently remain the more practical option for exposure to gold. However, EGRs are more suited for those who may want physical delivery in the future, such as jewellers or institutional investors.

Bottom line

Hence, gold continues to serve as a hedge against inflation and portfolio risk rather than a primary wealth-creation asset like equities. Experts suggest limiting gold exposure to around 10–15 per cent of total portfolio allocation.

It’s a big yes if you are looking at long-term wealth preservation, inflation protection or portfolio diversification.

To invest in EGRs, investors only need a demat and trading account.

(The content above is for information only, and does not constitute investment advice.)

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