Sebi Issues Master Circular on Electronic Gold Receipts: Know All About EGRs

The Securities and Exchange Board of India (Sebi) on June 24, 2024, issued a master circular for Electronic Gold Receipts (EGRs), compiling various circulars on the framework of EGRs, risk management, and standard operating guidelines for vault managers of these instruments. The previous master circular on EGRs was issued on June 1, 2023. Since then, Sebi has released only one additional circular on Electronic Gold Receipts, specifying that vault managers must apply to Sebi for prior approval if they are planning for a change in control of the vaults.

"Applications for fresh registration under a change in control shall be made to Sebi within six months from the date of prior approval," Sebi said.

What Are Electronic Gold Receipts and How Are They Traded?

One of the less talked about investment options in gold is Electronic Gold Receipts (EGRs). An EGR is an instrument or electronic receipt issued by a Vault Manager(VM) based on the deposit of underlying physical gold with the VM.

EGR is in demat form and is notified as security by Sebi, allowing them to be traded on the stock exchange like any other security. For this purpose, a Gold Exchange—a national platform for buying and selling EGRs—has been established, where price discovery will happen based on domestic supply and demand.

When buying an EGR, the stock exchange ensures that the physical gold backing is present with the vault managers. You can also present an EGR to the vault manager to receive physical gold in exchange for the receipt.

For trading EGRs, physical gold can be procured through a designated delivery center. A retail investor can approach a designated delivery center, deposit gold, receive an EGR in return, and then opt to trade the EGR on the BSE Gold spot stock exchange. EGRs can be bought using a demat account by registering with a stockbroker and buying EGRs just like buying stocks on the BSE, from one gram of gold to one kilogram.

However, according to a report by The Hindu, the concept of Electronic Gold Receipts (EGRs) has not gained much traction in India due to GST taxation issues when importing gold for conversion into EGRs. An importer noted that they must deposit gold in exchange-designated vaults to generate EGRs equivalent to the quantity of gold deposited. However, gold bars cannot be moved out of the bank vault or traded without paying a GST of three percent. Once an EGR is created after paying GST, the seller must wait until these receipts are converted back to physical gold, which may take months, locking up the three percent GST for that period.