Despite efforts to modernise gold investing in India through Electronic Gold Receipts, low liquidity, tax hurdles, and operational complexities hinder broader adoption, leaving gold ETFs and physical gold as preferred choices.
India’s push to create a more modern, exchange-traded route into gold has yet to win over investors. Electronic Gold Receipts, or EGRs, were designed to let people buy and sell gold on an exchange while the underlying metal is held in approved vaults, but the product remains a niche trade rather than a mainstream option. SEBI chairman Tuhin Kanta Pandey has acknowledged that EGRs have not gained the traction many expected, even as gold exchange-traded funds have become a far more familiar choice for savers.
The basic appeal of gold in India has not changed. What has changed is the way investors prefer to access it. According to BankBazaar chief executive Adhil Shetty, demand for gold does not automatically translate into enthusiasm for every new gold product. Investors want to know whether a product is easy to buy and sell, whether it can be converted into physical metal without friction, and whether the costs are transparent. On those counts, EGRs have struggled to make a convincing case.
Liquidity is one of the biggest obstacles. Trading in EGRs on NSE and BSE is typically thin compared with gold ETFs and gold futures, which means buyers and sellers can find it harder to transact quickly and at tight prices. Low volumes also tend to widen the gap between bid and offer prices, making the product less attractive for investors who value flexibility. Moneycontrol reported that these weak secondary-market conditions have been a major reason adoption has remained limited despite industry efforts to promote the instrument.
Tax and operational frictions add to the problem. When investors convert EGRs into physical gold, they have to pay 3% goods and services tax, which raises the cost for anyone ultimately seeking jewellery or bullion in hand. The process of turning physical gold into an EGR can also be cumbersome, involving assaying fees, vault-manager approvals and, in the case of jewellery, the loss of making charges already paid on the original purchase. Both Moneycontrol and other industry reports say those hurdles have discouraged take-up.
SEBI has also drawn a clear line between regulated gold products and so-called digital gold. In recent remarks reported by NDTV Profit and the Economic Times’ BFSI desk, Pandey said digital gold products are outside the regulator’s remit, while investors should look to SEBI-regulated routes such as gold ETFs and EGRs. Business Standard reported separately that the regulator has warned investors that digital gold products sit outside its framework and may carry risks. That distinction matters, because it reinforces the case for exchange-traded gold products even as it also highlights how much work remains before EGRs can become a widely used alternative.
For now, EGRs appear trapped between a clear policy rationale and an awkward user experience. The structure gives investors a route to gold that is more formal than unregulated digital offerings, but the combination of thin trading, tax costs, limited vault access and conversion hassles has kept demand muted. Until those frictions are reduced, gold ETFs and physical gold are likely to remain the better-known choices for most Indian investors.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
