MCX the first bourse to offer one gram gold futures with delivery option

With this, retail investors can now buy coins in the futures market and store it in a vault of his choice before taking delivery

The Multi Commodities Exchange (MCX), the market leader in non-agricultural derivatives, has launched a contract with delivery-based settlement and a one-gram trade lot. This means retail investors have another way to buy a gram of gold, stored in vault facilities of one's choice. 

MCX had a gold petal futures contract with delivery option for eight-gramme coin. This has now been converted to the 1g deliverable contract. It is perhaps the first such in the world, of a 1g deliverable gold contract in commodity derivatives.

It is a futures contract and a buyer has to deal through his broker, buy a gramme or its multiples, paying only the initial applicable margin. That allows a short-term investor to book a profit before taking delivery. On expiry, if he prefers to take delivery, he will have to pay the entire amount, including goods and services tax. And, get the coin transferred into a vault, which the broker should facilitate. 

An advantage of buying this on the MCX is that it will deliver 999-purity gold, from a London Bullion Merchant Association (LBMA)-certified refinery. 

Making charges are usually higher that what MCX charges when bought from other branded jewellers and also in many cases when digital gold is converted into physical gold.

In India, MMTC-PAMPS is the only LBMA-certified refinery. In the open market, such coins are traded at a premium. However, on MCX, even imported coins with 999-purity can be delivered. 

P S Reddy, managing director at MCX, said: The gold petal contract further enhances our gold product basket, by being the only contract with a deliverable one-gramme coin. It may cater to smaller retail investor demand, by providing a lock-in of various price points, thereby creating a Systematic Investment Plan (SIP)-type of flexibility. 

The coins can be held and accumulated in the electronic holding format ,enabled via our COMRIS (run  by the exchange’s clearing corporation) system. Since each coin comes with an individual assay certificate, quality assurance is a given. Convenience of transaction and liquidity of exchange platform are key advantages. 

The making charge being separate from the price and known upfront, it adds fairness and transparency to the pricing. This product might capture the imagination of a fast emerging new-age clientele with an evolving view on gold as an investment asset.”

As of now, only Rs 100 a gramme is the making charge. However, prices are near the wholesale physical market rates.  

Investors have options now for buying gold in 1g. However, while buying coin and comparing prices, one has to check purity. 

Several purity and caratage gold coins are available; 22-carat or 916 purity (cheaper due to lower purity), 995 or standard gold with 24-carat;  or 999-purity, which sells at a premium compared to 995. In India, the best purity level for coin is 9999. Only a price comparison will not suffice.

Several e-wallet platforms are also providing facilities to buy gold digitally, such as PayTM, SafeGold, Augmont or Google Pay. 

When converted in physical coin, these platforms have additional courier charges, while coin purchased from MCX can be stored with a vault under your control. 

Augmont also delivers gold coin with weight as low as 0.1 gramme (100 milligrammes), 0.2 g and 0.5g.  

If delivery is not required, digital gold is a good option. It advantage is that the smallest amount can also be invested and investors need not convert in delivery. However, these platforms are not officially regulated; they follow voluntary regulations.