Vruksha Financial Planners: Investment Products

Investment Products in Commodities: A New Paradigm

Commodity Market: In perspective:

1.Growth has been phenomenal, but instruments are limited.

2.Current structure provides instruments for :

Trading

Hedging/ Price Risk Management

Jobbing

Speculation

Cash Future Arbitrage

No investment product available for retail and long term investors like equity( Free from daily MTM and roll over at the time of maturity)

3.Mass participation of retail investors in commodities is still absent, because of :

Futures contracts: High Risk, Leveraged Product
Investment in Physical Commodities: Complexity, absence of smooth exit, VAT compliance, Good for commodity traders only
ETF: High cost of trade and holding due to AMC charges

Therefore, investment products in commodities are required, which can address all these issues.

National Spot Exchange: Launched E-Series:

Realizing its need, NSEL has designed the product for trade and investment in commodity in the electronic form called e-Series.

E-Series is available for trading with all features and convenience of equity market scrip and operation.

Only non perishable commodities will be made available for trading in demat form.

NSDL and CDSL act as the Depository for holding such commodity in the electronic form. While the commodity in physical form is kept in the designated vault/storage/warehouse.

Currently NSEL has launched 5 commodities with their trading unit as under:

1.E-Gold : 1 gram
2.E-Silver : 100 grams

3.E-Copper, E-Zinc,E-Lead: 1 Kg

4.E-Platinum

E-series products:

E-series is an unique investment products launched by National Spot Exchange for enabling the small and retail investors to park their funds in commodities in smaller denominations.

The investors hold the commodity units such as Gold,Silver,Copper ,Zinc and Lead in smaller denominations in the demat account.

Demat of commodity implies storage of commodities in Exchange designated vaults/warehouses and keeping record of its ownership in electronic form.

E-series Contract Information:

Duration of contract : Single day.

Settlement cycle: T + 2

Trading timing: 10:00 AM to 11:30 PM (Mondays through Fridays)

Commodity pay in, commodity pay out, Funds pay in, Funds Pay out : T + 2

Settlement of demat Gold/Silver/copper/ Zinc/ Lead ICIN through the CM-Pool account of members as done in stock exchanges

Settlement in demat only, no physical delivery in the contract

Clients must open beneficiary account before trading in these instruments

Clients can accumulate commodities demat by buying in smaller denominations periodically and exchange it with physical commodity whenever required.

No custodial charges for storing commodities in demat form.

Opportunities and Road ahead:

20 Commodities under E- series during calendar year 2011,creating a vibrant cash segment in commodities.

Platinum,Steel,Nickel,Aluminum,etc.
Some Non Perishable Agri-commodities:Black pepper,Castor,etc.

ODIN,ODIN diet,net.net.,etc.(All products of FTIL)available free of cost for NSEL members.

SIP(Systematic Investment Plan):software available free of cost.

E Trader:Software available free of cost.

Fungibility of E-gold with jewellary in pipeline.

Empowering members by organizing awareness programs for their clients.

There is a pull factor asking for E-Gold and E-Silver,so it is easy to promote business.

Product offering by NSEL:

E-Series(E-Gold,E-Silver,E-Copper,E-Zinc&E-Lead)is an innovative product-line

for those who look at Commodities as an Asset class.

Preferences of Demat holding instead of Physical holding:

It’s like comparing keeping cash at home Vs. maintaining a savings bank account.

Invest in E-Series gives the comfort of easy liquidity, reach, safety, and low cost.

Provides transparent pricing and seamless entry and exit to investors during the trading hours i.e. 10 am to 11.30 pm.

There is no purity issue and storage risk, if invested through E-series.

E-series products have standardized selling and buying prices across the country.

No storage charge for investors for accumulating gold, silver and copper in the demat account .

Way To Participation:

Client registration

Opening of CM Pool Account by NSEL members.

Clients are entitled to sell and deliver the demat commodity by issuing delivery instruction slip (DIS) to transfer their holding into respective member’s pool account in the respective settlement number.

Similarly, pay-out is credited in respective members’ pool account and the member in turn transfers the same to the clients/ beneficiary account.

Clients are required to open only one demat account, either with CDSL or with NSDL.

E-Gold Performance

Comparison of Benchmark E-Gold Price vs. NSE Index