MUMBAI: Investors who refrain from trading in commodities on stock exchanges due to Shariah (Islamic jurisprudence) restrictions, can now actively buy and sell precious commodities like gold and silver in the spot market at real-time prices.
National Spot Exchange (NSEL) has introduced E-series products like E-Gold and E-Silver, wherein retail investors can buy a minimum of 1 unit of gold equivalent to 1 gram of gold and 1 unit of silver equivalent to 100 grams of silver in demat form at real-time Indian prices, which tracks the international gold prices.
If a buyer wants to take delivery of E-Gold in physical form then he can do so in units of 8gm, 10 gm, 100 gm and 1 Kg and any combination thereof. Similarly, E-silver can be taken delivery of in units of 100 gm, 1 kg and 5 Kg, or any combination thereof.
The reasons that make the spot market attractive to Muslim investors are that the transactions are delivery-based, don’t involve speculation as in Futures & Option market, and unlike gold exchanged traded funds (ETFs), money is not parked in debt instruments.
“ NSEL E-product is the perfect thing for Shariah-compliant investors. There are lot of people who want to invest in gold and silver but stay away from speculative futures market. Spot exchange is an amazing platform for such investors, as it gives them full control over their assets. They also have convenience of demat account and other overheads are also taken care of,” said Ashraf Mohamedy, managing director, Idafa Investments.
“There are quite a few customers who are interested in investing in gold via spot market. They can even accumulate gold and silver by adopting an SIP-like strategy. Investors should allocate at least 15-20 per cent of their funds towards gold as it is a good hedge against inflation,” Mohamedy added.
Most transactions on commodities exchanges are forward contracts like futures & options which are against Shariah principles. Islam prohibits believers from speculating and also from selling something that one doesn’t own in the first place (read short selling).
Further, Gold ETFs park part of an investor’s money in debt instruments whereas Islam prohibits Muslims from generating any income by means of Riba (Usury), or interest.
Amongst other disadvantages of parking funds in gold ETF, an investor has to bear cost in the form of AMC charges but in E-gold there is no holding cost.
Also, gold ETF cannot be converted into gold coins and small denomination gold bars. Hence, investors willing to convert units into physical gold do not prefer ETF. In case of E-Gold, investors can get physical delivery of gold coin and bars in various denominations, at various locations, without any premium.
Buying and selling of precious commodities in the physical market has its own disadvantages. Firstly, the customer has to pay a premium of 1 per cent every time he purchases or sells the commodity to a jeweller. Secondly, there are theft-related security concerns.
“E Series product has been designed and developed by NSEL keeping in mind the convenience of the client to buy and sell the commodities in a transparent manner at a single price across the nation which is accessible to all. For buying and selling E gold, the impact cost is nearly zero. It can be traded throughout the day from 10 am to 11.30 pm. There is no risk pertaining to impurity or weight difference. Hence, E Gold combines the benefits of holding physical gold, demat records and seamless entry-exit process,” said Mr. Anjani Sinha, MD & CEO, National Spot Exchange.
Ashfaque Ansari, a businessman from Mumbai, who has some investments in physical gold, said, “This (spot exchange) is a good option as it saves the extra ‘premium’ investors pay to jewellers at the time of buying and selling gold coins.”
Since its launch in March 2010, there has been consistent growth in turnover. Presently, the turnover in E series product varies between Rs.10 crores and Rs 25 crores per day.
“More than 10,000 demat account holders are now registered with our empanelled Depository Participants and the numbers are growing consistently. All the registered demat account holders carry out the transaction,” Sinha added.
NSEL is also working on non-perishable commodities like zinc, copper, nickel, etc. Within one year, NSEL plans to launch 15 commodities under E series.