Electronic Gold Receipts: India’s Regulated Framework for Trading Physical Gold as a Security

India has long been one of the world’s largest consumers of gold, yet the market for physical gold has historically remained fragmented, opaque, and largely outside the ambit of formal financial regulation. The introduction of Electronic Gold Receipts (“EGRs”) marks a significant departure from this status quo. By bringing physical gold within the fold of securities law, the Securities and Exchange Board of India (“SEBI”) has sought to create a transparent, exchange-traded ecosystem in which gold can be held, traded, and redeemed in a manner consistent with the standards applicable to other regulated financial instruments. This article sets out the legal framework governing EGRs, traces the lifecycle of such instruments, examines the key features that distinguish them from existing gold investment products, and identifies certain structural considerations that may warrant attention as the market develops.

What is an Electronic Gold Receipt?

The foundational step in the creation of the EGR framework was taken by SEBI in its Board meeting held on September 28, 2021, wherein SEBI approved the framework for the Gold Exchange or the Electronic Gold Receipts Segment.

At the outset it is essential that one understand what is an Electronic Gold Receipt. An Electronic Gold Receipt is a dematerialised security that represents the ownership of physical gold stored in a SEBI-accredited vault and held electronically by depositories on behalf of the beneficial owner.

Each EGR is backed by a corresponding amount of physical gold of the quality and purity as reflected on the receipt. These receipts, once created, serve as proof of ownership of a specified quantity of gold and are in turn tradable on the stock exchanges.

The Lifecycle of an Electronic Gold Receipt

The implementation of the EGR framework is structured across three tranches: the First Tranche[1] dealing with the Creation of Electronic Gold Receipts, the Second Tranche[2] governing the Trading of Electronic Gold Receipts on stock exchanges, and the Third Tranche[3] addressing the Conversion of Electronic Gold Receipts into Physical Gold.

Creation of the EGR

The process of creating an EGR commences at the instance of the depositor[4], who is the owner of the gold. Upon receipt of the gold, the Vault Manager records the relevant information and creates the EGR[5], which thereafter reflects in the dematerialised account of the beneficial owner.

At this time, it is important to appreciate a key structural constraint that regulates the supply of Gold into the EGR ecosystem. The physical gold entering the system must originate either through imports[6] via authorised channels or through domestic refineries[7] that are registered with the Bureau of Indian Standards (“BIS”) and separately accredited by the stock exchanges.

Furthermore, the gold so deposited must conform to either the London Bullion Market Association (“LBMA”) Good Delivery Standard or the India Good Delivery Standard[8].

This requirement of traceable and standardised sourcing means that an ordinary individual cannot deposit personal gold holdings whether in the form of jewellery, coins, or non-compliant bars directly into the EGR vaulting infrastructure.

Each EGR so created is assigned an International Securities Identification Number[9] (“ISIN”), and SEBI has prescribed the nomenclature to be used for creating such ISINs[10]. The Master Circular stipulates that Vault Managers shall accept deposits of gold between 10:00 a.m. and 3:00 p.m[11]. and are similarly permitted to allow withdrawals[12] during the same window.

The Vault Managers and Depositories are further required to reconcile the data of EGRs created against the physical gold lying in the vaults at the end of each day on a daily basis[13].

Trading of the EGR

Once created and reflected in the demat account of the beneficial owner, each EGR may be traded as a regular listed security on the stock exchanges. The trading hours[14] for EGRs run from 9:00 a.m. to 11:30 p.m., or up to 11:55 p.m. depending on the applicability of U.S. daylight savings time. The stock exchanges have been vested with the authority to launch contracts of appropriate denominations for trading purposes. Trades executed in the EGR segment are settled by the Clearing Corporations on a T+1[15] basis.

A notable feature of the EGR framework is that all EGRs are fungible[16] i.e. an EGR shall not be linked to the unique bar reference number of any specific gold bar. SEBI also permits the interoperability[17] of deposited gold, such that gold deposited with one vault may be withdrawn from another vault owned by the same or a different Vault Manager.

Conversion into Physical Gold

The holder of an EGR may at any time convert the receipt into physical gold, subject to the availability of gold at the withdrawal centre from which the beneficial owner seeks to withdraw. A beneficial owner seeking withdrawal places a request[18] with the depository, which in turn intimates the concerned Vault Manager. The Vault Manager, upon delivering the gold to the beneficial owner, extinguishes the EGR[19] and shares this data with the Depositories for end-of-day reconciliation.

The beneficial owner also has the option to have the gold assayed by an empanelled assayer[20] before the Gold leaves the vaulting infrastructure. The charges towards assaying, transportation, and the fees of the assaying agency are however borne by the beneficial owner[21].

The Master Circular provides that complaints regarding the weight or quantity of gold shall be resolved by the Vault Manager within one working day of the receipt of such complaint, failing which the operations of the EGR segment of the concerned vault shall cease until the matter is resolved[22].

In cases of a dispute concerning the purity of the gold, the matter is taken up with the assayer by the investor, and in such circumstances the Vault Manager bears the responsibility of ensuring that the gold does not leave the vaulting system[23], and of facilitating its movement to and from the laboratory of the assayer. In cases where the gold is found to be not as per the specified quality by the assayer, the stock exchange shall ensure that the concerned refinery makes good the loss to the beneficial owner[24]. Once the gold has left the vaulting infrastructure, no complaints in relation thereto shall be redressed by the Vault Managers[25].

The entire interface for the operationalisation of this framework is to be created and maintained by the Depositories[26], being NSDL and CDSL.

The Legal Framework

The Government of India, by way of Gazette Notification S.O. 5401(E) dated December 24, 2021, declared Electronic Gold Receipts to be “Securities” under Section 2(h)(iia) of the Securities Contracts (Regulation) Act, 1956 (“SCRA”).

The notification dated December 24, 2021 defined an “Electronic Gold Receipt” to mean an “electronic receipt issued on the basis of deposit of underlying physical gold in accordance with the regulations made by SEBI under Section 31 of the SCRA”.

The consequence of this inclusion is significant, as by virtue of being classified as Securities under the SCRA, EGRs are now regulated and governed by SEBI in its capacity as the regulator of the securities market.

Following the gazette notification, SEBI issued various Circulars, Master circulars and Frequently Asked Questions to operationalise the product. SEBI has since consolidated its earlier circulars through Master Circular No. SEBI/HO/MRD/MRD-PoD-1/P/CIR/2024/87 dated June 24, 2024 (“Master Circular”) on Electronic Gold Receipts, which superseded the previous Master Circular No. SEBI/HO/MRD/MRD-PoD-1/P/CIR/2023/82 dated June 1, 2023.

The Vault Manager: Registration, Obligations and Investor Safeguards

Central to the operationalisation of the EGR framework is the institution of the Vault Manager. Vault Managers are registered intermediaries under the Securities and Exchange Board of India (Vault Managers) Regulations, 2021 (“Vault Managers Regulations”), notified in the Official Gazette vide notification No. SEBI/LAD-NRO/GN/2021/61 dated December 31, 2021. As a condition of registration, Vault Managers are required to maintain a prescribed minimum net worth of INR 50 crores[27] and to furnish a Financial Security Deposit (“FSD”) of Rs. 10 lakhs[28] with either NSDL or CDSL before obtaining a certificate of registration from SEBI. The amount in the FSD held with the depositories represents the compensation pool[29] available to aggrieved investors in the event of established losses caused by the Vault Manager, with claims being settled by the depositories on a pro-rata basis.

In addition to the FSD, Vault Managers are mandatorily required to carry insurance[30] covering the risk of theft, fire, burglary, fraud, negligence and force majeure events. They are further required to obtain Fidelity Guarantee and Crime Insurance as well as Professional Indemnity cover. The value of gold insured must be marked to market on a replacement value basis on an ongoing basis, ensuring that the insurance coverage keeps pace with the prevailing value of gold held in custody. Vault Managers are also obligated to indemnify any loss[31] caused to the depositor or beneficial owner arising in the course of the provision of vaulting services.

Infrastructure Requirements for Vaults

The Master Circular prescribes certain mandatory characteristics that the vaults of Vault Managers must satisfy. Each vault must be under the absolute control of the Vault Manager[32], must be connected via adequate road and rail networks[33], must have strong rooms, and must maintain a clear demarcation between the EGR business and the Vault Manager’s other businesses. Each vault is additionally required to have an electronic balance for weighing gold[34] and a communication link with the nearest police station[35].

Denominations

The EGRs issued by the National Stock Exchange are currently available in the following denominations:

GOLD100MG95, GOLD1G95, GOLD10G95, GOLD100G95 - at 99.5% purity; & 

GOLD100MG99, GOLD1G99, GOLD10G99, GOLD100G99 - at 99.9% purity.

Taxation

By virtue of their classification as Securities under the SCRA, EGRs are taxed in the same manner as other securities. Accordingly, gains arising on the holding and transfer of EGRs for a period of up to and including 12 months are taxed as Short Term Capital Gains at the applicable rates, whereas gains arising from holdings exceeding 12 months are subject to Long Term Capital Gains tax at the applicable rates.

EGRs vis-à-vis Gold ETFs and the Gold Monetisation Scheme

Gold Exchange Traded Funds (“Gold ETFs”) function as mutual fund products backed by gold holdings that are maintained by Asset Management Companies or their appointed custodians. EGRs, by contrast, are designed to represent the direct ownership of physical gold stored in SEBI-regulated vaults for the beneficial owner. Unlike EGRs, Gold ETFs do not permit the redemption of physical gold or the taking of delivery thereof. Investors seeking to convert their holdings into physical gold may accordingly find EGRs a more suitable instrument compared to fund-based gold products. Additionally, EGRs are expected to exhibit no or lower tracking errors relative to Gold ETFs, given that the receipts are linked directly to physical gold rather than managed through a fund structure, and owing to the absence of any Asset Management Company expense ratios.

The Gold Monetisation Scheme (“GMS”), on the other hand, is a Government of India initiative that permits individuals to deposit gold of varying forms including jewellery and coins with designated banks and earn interest on the deposited gold. Unlike EGRs, which are exchange-traded securities offering price discovery and liquidity through the secondary market, the GMS is structured as a deposit product. The GMS is therefore better suited to individuals seeking to monetise household gold holdings, whereas the EGR framework is oriented towards participants operating within a regulated bullion supply chain who seek the additional benefit of exchange-based price discovery and tradability.

Conclusion

The EGR framework represents a considered attempt by SEBI to bring one of India’s most deeply embedded asset classes within the ambit of a regulated, transparent, and exchange-driven marketplace. Whether the framework achieves meaningful traction will depend as much on investor awareness and market depth as it does on the robustness of the regulatory architecture. The low statutory compensation cap for vault manager defaults, the passing of assaying costs onto beneficial owners, and the restriction on the sourcing of gold to imports and exchange-accredited refineries are areas that may warrant revisiting as the market matures. Nevertheless, as a foundational regulatory intervention, the EGR framework lays the groundwork for a more formalised gold market in India one that aligns with SEBI’s broader objective of deepening the securities market.

[1]Clause 1.6.1 at Page 4 of SEBI Master Circular dated June 24, 2024

[2]Clause 1.6.2 at Page 4 of SEBI Master Circular dated June 24, 2024

[3]Clause 1.6.3 at Page 4 of SEBI Master Circular dated June 24, 2024

[4]Regulation 2(g) of the Securities and Exchange Board of India (Vault Manager) Regulations, 2021

[5]Clause 1.7.4.1 at Page 5 of SEBI Master Circular dated June 24, 2024

[6]Clause 3.16.1.6 at Page 31 of SEBI Master Circular dated June 24, 2024

[7]Clause 1.7.2.1 at Page 5 of SEBI Master Circular dated June 24, 2024

[8]Clause 1.7.3 at Page 5 of SEBI Master Circular dated June 24, 2024

[9]Clause 3.17.1.1 at Page 32 of SEBI Master Circular dated June 24, 2024

[10]Clause 3.17.1.2 at Page 32 of SEBI Master Circular dated June 24, 2024

[11]Clause 3.16.2.1 at Page 31 of SEBI Master Circular dated June 24, 2024

[12]Clause 3.18.2.1 at Page 34 of SEBI Master Circular dated June 24, 2024

[13]Clause 3.5.1 at Page 20 of SEBI Master Circular dated June 24, 2024

[14]Clause 2.1.1.2 at Page 8 of SEBI Master Circular dated June 24, 2024

[15]Clause 5.18 at Page 49 of SEBI Master Circular dated June 24, 2024

[16]Clause 1.12.1 at Page 7 of SEBI Master Circular dated June 24, 2024

[17]Clause 1.12.2 at Page 7 of SEBI Master Circular dated June 24, 2024

[18]Clause 3.18.1.1 at Page 33 of SEBI Master Circular dated June 24, 2024

[19]Clause 3.18.1.9 at Page 34 of SEBI Master Circular dated June 24, 2024

[20]Clause 1.15 at Page 7 of SEBI Master Circular dated June 24, 2024

[21]Clause 1.15 at Page 7 of SEBI Master Circular dated June 24, 2024

[22]Clause 3.12.4.1.1 at Page 26 of SEBI Master Circular dated June 24, 2024

[23]Clause 3.12.4.2.2 at Page 27 of SEBI Master Circular dated June 24, 2024

[24]Clause 3.12.4.2.4 at Page 27 of SEBI Master Circular dated June 24, 2024

[25]Clause 3.12.5 at Page 27 of SEBI Master Circular dated June 24, 2024

[26]Clause 3.15.1 at Page 26 of SEBI Master Circular dated June 24, 2024

[27]Regulation 4(b) of the Securities and Exchange Board of India (Vault Manager) Regulations, 2021

[28]Clause 3.1.1.1 at Page 16 of SEBI Master Circular dated June 24, 2024

[29]Clause 3.1.2 at Page 16 of SEBI Master Circular dated June 24, 2024

[30]Clause 3.4 at Page 20 of SEBI Master Circular dated June 24, 2024

[31]Clause 3.9.1 at Page 24 of SEBI Master Circular dated June 24, 2024

[32]Clause 3.3.1.1 at Page 18 of SEBI Master Circular dated June 24, 2024

[33]Clause 3.3.1.2 at Page 18 of SEBI Master Circular dated June 24, 2024

[34]Clause 3.3.1.5 at Page 18 of SEBI Master Circular dated June 24, 2024

[35]Clause 3.3.1.6 at Page 18 of SEBI Master Circular dated June 24, 2024

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This article has been writte by Sumit Yadav (Principal Associate); with support from Devya Shah is a Trainee Associate; John Palackal is a student at Government Law College; and Shlok Paliya is a student at the Institute of Law, Nirma University.