Gold & Silver

“Every Indian citizen, who follows Islamic investment principles should greet this opportunity. These are very good instruments to park small savings, or to plan for Hajj on a future date. You can go for Hajj by selling your units, whenever you have put aside sufficient savings.”

–Mr. MH Khatkhatay, Senior Advisor, TASIS

Stocks remain the best bet for wealth creation, albeit risky. To offset that risk, Islamic investors in India can diversify their portfolios by including gold and silver besides equity. Fear of economic collapse will drive global investors towards currency based assets, most particularly U.S obligations, and fear of currency collapse will foster investor movement towards assets such as gold. Hence, Gold or silver are used as means to preserve wealth rather than create it. The below graph shows the Gold, Silver and SENSEX’ performance from 2002 till 2012:

As mentioned earlier, it can be seen that during the 2008-09 crisis, even when the SENSEX fell by 51%, gold and silver went up by 36% and 16% respectively.

How can Wealthcity help me?

You can invest in Gold through Gold ETFs. Exchange Traded Funds (ETFs) are passively managed funds that seek to mirror the return of an index, commodity or a basket of assets. Gold ETFs provide you an opportunity to participate in the Gold bullion market without the necessity of taking a physical delivery of gold. When physical gold prices move up, Gold ETF appreciates and vice versa.

Each unit is approximately equal to the price of one gram of Gold. Some provide ½ gram also. It can be traded on stock exchanges like buying/ selling a stock. We can help you to open an account to perform trading using Gold ETFs. The National Spot Exchange Limited (NSEL) was recently given shariah approval by TASIS. Indian Shariah Investors can now trade in e-gold, e-silver and e-copper in demat form. Investment in these commodities will help the Muslim investor to save for the future as large proportion of Muslims do not hold any bank accounts.

Wealthcity can help you to set up related accounts for trading in Gold, Silver and Copper. We will also advise on when to buy and sell.

Despite thriving and affluent Islamic communities across Europe and North America, Muslims living in these regions have traditionally been underserved when it comes to investment. The reason for this is that managing investments according to Shariah principles (the moral code and religious law of Islam) can be incredibly time consuming since the vast majority of investment decisions need to be pre-approved by Islamic scholars.

Shariah-compliant exchange-traded funds (ETFs), which provide low-cost exposure to conventional equity markets while strictly adhering to Shariah investment principles, provide a much-needed solution to this problem.

Presenting a whole new way of looking at gold , with Gold ETFs traded. These funds not only tap the huge potential of gold, they also remove the Jewellery- making charges and the risks and liabilities of storing gold physically. And what’s more, they are tax efficient and extremely easy to buy and sell. Invest in best form of gold there is. invest in Paper Jewellery today.

Advantage

  • Diversification : Considered as an excellent diversification for your portfolio.
  • Liquidity : Since it trades like a share, buying and selling happens quickly and therefore it is highly liquid.
  • Safety : Gold ETF ensures that the custody and quality of gold is consistent.
  • Security : All transactions happen in electronic mode, so there is no risk in case of unforeseen circumstances.
  • Lower Cost : The expenses incurred in buying and selling Gold ETF are much lower then the cost incurred in buying, selling, storing and insuring physical gold.
  • Making Charges : You don’t have to pay any making or delivery charges.

Benefits:

Gold ETFs provide an opportunity to investors to accumulate gold over a given period of time. Since it can be purchased in small quantities, one can plan the procurement as per future requirements, say, for the marriage of children, etc.

Moreover, there is no risk of theft and one need not worry about the storage cost (as in case of physical gold) because such units are held in demat or paper form. In the case of physical gold, one ends up paying extra for making charges as well, but there is no extra charge applicable in gold ETFs. When needed, one can exchange them in multiples of 1 kg units of 0.995 purity.

Besides, unlike gold coins and bars, for which most jewellers offer only an exchange and not a buyback, gold ETF’s can be sold at transparent prices across India. Even in terms of taxation benefits, gold ETFs are way ahead of the physical gold. No sales tax, VAT or securities transaction tax is applicable on gold ETFs. As units of such funds are traded like stocks on the exchange, it is eligible for the long-term capital gains after one year, unlike physical gold, which is eligible for long-term capital gains after three years. Besides, unlike physical gold, investors don’t have to pay wealth tax on gold ETFs.

Gold ETF Benefits

NSE Gold You end up paying a premium for gold coins & bars purchased from banks and jewelers charge extra as making charges. With GOLD ETF, you don’t have to pay any premium, making or delivery charges. Yet whenever needed you can also exchange them in multiples of 1kg units for 0.995 purity.

You end up paying a premium for gold coins & bars purchased from banks and jewelers charge extra as making charges. With GOLD ETF, you don’t have to pay any premium, making or delivery charges. Yet whenever needed you can also exchange them in multiples of 1kg units for 0.995 purity.

Benefits on Gold ETF – NSE Gold You always worry about the safety of your gold and also end up paying for bank lockers. Buying Gold ETF is purchasing gold in electronic form. You buy them just like you buy stock of any company from your broker. With Gold ETF, since your gold is now in demat form there are no worries of theft and you also save on locker charges.

You always worry about the safety of your gold and also end up paying for bank lockers. Buying Gold ETF is purchasing gold in electronic form. You buy them just like you buy stock of any company from your broker. With Gold ETF, since your gold is now in demat form there are no worries of theft and you also save on locker charges.

Advantages of Gold ETF –

NSE Gold Unlike gold coins and bars, which the banks don’t buy back and most jewelers only offer to exchange but not buy back. Gold ETFs can be sold anytime through your broker at transparent prices available for view at NSE’s website. And unlike other forms of gold, you get the same price for your Gold ETF across India.

Unlike gold coins and bars, which the banks don’t buy back and most jewelers only offer to exchange but not buy back. Gold ETFs can be sold anytime through your broker at transparent prices available for view at NSE’s website. And unlike other forms of gold, you get the same price for your Gold ETF across India.
On Gold ETF, you pay no sales tax, securities transaction tax, VAT or wealth tax.

COMMODITY MARKET

National Spot Exchange Ltd. is commodity exchange for spot trading of bullions and agricultural commodities. In 2010 they came up with innovative product called E-series. The first products launched under the E-series categories were E-Gold, E-Silver and E-Copper. Later on E-Zinc, E-Lead, E-Nickel and lately E-platinum joined the wagon. These E-series products are certified by Shariah Advisory institution TASIS. These E-series products enable even small investors to invest and keep their holding in demat form. The equivalent amount of each E-series product’s unit (traded in market) is stored in the vault of NSEL in physical form. The vault is regularly inspected by TASIS to assure Shariah compliance. Investors are also provided option to take physical delivery of the E-series products.

If we analyse the performance of the bullion (E-Gold, E-silver), they have proved healthy returns to their investors over a period of time. E-gold over the period of three years has given an average return of 17.8% per annum, whereas E-silver has given an average return of 20.05% per annum for the same period. 

PRODUCTS

ABSOLUTE ANNUAL RETURN (%)

RETURN SINCE LAUNCH

2010

2011

2012

E-Gold 8.30 30.36 14.76 65.62
E-Silver 38.34 11.30 10.51 72.06
E-Platinum 5.50 5.50
E-Copper 18.17 -9.33 5.37 13.22
E-Zinc -9.48 8.89 -1.43
E-Nickel -14.23 -14.23
E-Lead -11.62 14.33 1.04

Exhibit: 10, Source: NSEL

Shariah Compliant Spot Commodity Trading :-

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, silver, platinum and other commodities in the spot market at real-time prices.

There are lots 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. 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.

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.

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.

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.