A Study on Investors Attitude towards Physical Gold and E-Gold in Coimbatore City Dr. B. Saranya Assistant Professor, PSG College of Arts & Science, Coimbatore, Tamil Nadu, India Ms. U. Jisha Assistant Professor, PSG College of Arts & Science, Coimbatore, Tamil Nadu, India Abstract In every Country gold has been a valuable and highly sought-after precious metal for coinage, jewellery, and other arts since long before the beginning of recorded history. Gold standards have been the most common basis for monetary policies throughout human history. For the first time in the history of Indian commodity market, National Spot Exchange has launched a unique investment product in gold on its platform. It provides an opportunity for small investors to invest in gold in smaller denominations of one gram. Investors can now trade and invest in gold just like shares. E- gold was a digital gold currency operated by Gold & Silver Reserve Inc. under e-gold Ltd. that allowed the instant transfer of gold ownership. E-gold offers no protection whatsoever if an attacker succeeds in obtaining the user's e-gold account number, the user's e-gold password, and access to the user's registered email account. Any losses resulting from a security breach cannot be undone since transfers are non-reversible. This study attempts to know about the investors attitude towards physical and e-gold in Coimbatore City. Hence a sample of 200 customers was selected and their investment pattern was also considered for the study. Key words: E-gold, investor s attitude, physical gold 1.1 Introduction Gold has been highly valued for thousands of years, not only because of its beauty and resistance to corrosion, but also because it is easier to work than all other metals. In addition, gold was easier to obtain in pure form than the other metals. Because of its relative rarity, gold became used as currency and as a basis for international monetary transactions. Gold is extracted from gravel or from crushed rock by dissolving it either in mercury (the amalgam process) or in cyanide solutions (the cyanide process). The gold is recovered from the solution and melted into ingots. Gold-bearing rock with as little as 1 part of gold to 300,000 parts of worthless material can be worked at a profit. The rarest form of gold is a nugget. Pure gold is the most malleable and ductile of all the metals. It can easily be beaten or hammered to a thickness of 0.000013 cm (0.000005 in), and 29 g (1.02 oz) could be drawn into a wire 100 km (62 mi) long. It is one of the softest metals (hardness, 2.5 to 3) and is a good conductor of heat and electricity. Gold is bright yellow and has a high luster. Finely divided gold, like other metallic powders, is black; colloidally suspended gold ranges in color from ruby red to purple. 1.2 E-Gold The National Spot Exchange Limited (NSEL) has introduced E-series products in commodities. To start with, they have launched E-Gold and E-Silver. Trading in E-Gold has been on since 17th March 2010. E-Gold units can be bought and sold through the exchange (NSEL) just like shares. One unit of e-gold is equal to 1 gram of gold. For long term goals like accumulating gold for children s marriage, retail investors can buy e-gold in small quantities in their demat account over a period of time. Once their target is achieved, the individual can take physical delivery of gold through the exchange. By buying gold in electronic form (demat), the individual need not worry about the purity of gold, storage costs and the insurance of gold. If the individual has bought e-gold only for investment purpose and does not need to take delivery of physical gold, then he can always sell the e-gold units and encash IRJBM (www.irjbm.org ) May- 2014 - Volume No V Page 58
them. 1.2 Review of Literature As per a consumer demand report (World Gold Council) the consumer demand figures in selected countries suggests: India accounts for nearly one-third of the total world demand for gold i.e. 1059 tonnes. Indian consumer demand for gold is 37.6 per cent more than that of China (769.7 tonnes). Another major economy of the world USA reported at 213.5 tonnes. Moreover if we look at the demand for gold alongside the size of these major economies we see that: India s GDP is no where closer to that of China and USA. In terms of percentage share India s GDP is 27.7 percent of China and a meager 11.0 percent of USA. (UNCTAD, RBI) Thus looking at the pattern of gold consumption in India it seems that creating awareness about the different gold investment avenues and trading in such avenues can help in bringing down the demand of physical gold. Mukesh Kumar and Sougata Ray (2012) made a study on Gold ETF performance: A comparative Analysis of Monthly Returns revealed that Gold investment has been a very important aspect for age across the globe. The study revealed that gold ETF has given good return in comparison to a diversified equity fund during the study period. Fisher (2008) in his article mentioned that Gold Exchange Traded Funds have made investing in the yellow metal very convenient and inexpensive. The study revealed six reasons why gold ETF s are considered as the best way to invest in them, the reasons are such as for income tax benefit, investment in small denominations, hedging convenience, wealth tax exemption and better holding of ETF s as compared to physical gold holdings. 1.3 Statement of the Problem Now a day s service to investors is an important issue. The service rendered by NSE(National Spot Exchange) has deteriorated and is also subject to criticism. The investor s of Gold are often facing delays, refusal of service and grievances in services of agents and like. E-Gold is now entering a new phase of development, shifting the emphasis towards improvement in the quality of customer service and thereby achieving operating efficiency and profitability. Hence, the study on returns and investors attitude towards e-gold are studied to ensure customers quick liquidity position and also to ensure their savings for future. 1.4 Objectives of the Study To study the awareness level of the customers towards e-gold. To study the investment strategy of the investors. To analyze the preference of e-gold to physical gold. 1.5 Methodology of the study Research methodology is a way to systematically solve the research problems. It may be understood as a science of studying how research is done scientifically. It includes the overall research design, the sampling procedure, data collection method and analysis procedure. Research design The study adopts Descriptive research design. Descriptive design is one that gives a snapshot of the prevailing environment. It is used to provide a summary of some aspects of the environment when certain aspects of the problem are speculative in nature. Descriptive research includes surveys and fact-finding enquiries of different kinds. The major purpose of this research is description of state of affairs as it exists at present. The study undertaken is of descriptive nature as its main objective is IRJBM (www.irjbm.org ) May- 2014 - Volume No V Page 59
to find out the perception of the Investor s of Gold as of now. The findings of the study give us an idea on how Gold is perceived by the Investor s in the present. Source of Data Data is collected through primary source. Primary data was collected through a questionnaire. The research was done in the form of direct personal interviews. Sampling design The population consists of the entire investors of Coimbatore who have invested in Gold. The entire population consists of 200 respondents who have invested in Gold schemes. Statistical tools used for Analysis Percentage analysis Chi-square analysis Weighted average score analysis Limitations of the study The area of the study is limited to Coimbatore city alone. Hence the results may not be true for other geographical locations. Due to limitation of time, the sample size is restricted to 200. This study is fully based on customer satisfaction so it may vary from time to time. 2. Analysis and Interpretations The data collected from the customers are systematically presented under various headings. They are: Section A: Deals with analysis of data relating to the customers by using percentage analysis. Section B: Deals with application of statistical analysis such as Chi-square analysis and Weighted average score analysis. 2.1 Application of Statistical Tools 2.1(A) Section A Percentage Analysis of Investors Attitude The data collected from the respondents were systematically analyzed and the results of percentage analysis are given below and it is depicted in Table- 1 and Table 2. It is understood from Table -1 that among total respondents 79 (39%) of them buy gold in the form of ornaments, 53 (27%) of the respondents buy gold in the form of gold coins or biscuits, 41(21%) of the respondents make their investment in the form of E-gold investment and 27 (13%) of the respondents purchase are in the form of ETF(Exchange Traded Fund). Table -2 that among the total respondents, 65(33%) of the respondents have opined that coins are the easiest way to liquidate the gold investment, 64 (32%) of the respondents have opined that ornaments are the quickest way to liquidate their funds, 60 (30%) of the respondents are of the opinion of e-gold and 11(5%) of the respondents are of the opinion that ETF(Exchange traded fund) is the easiest way to liquidate gold investment. Refer Fig (1) 2.2 (B) Section B Chi-Square Analysis of Investors Attitude Analysis of data by using Chi-square analysis is depicted in Table 3. The Chi-square test is used to test the independence of two attributes/factors. This test is employed to test the significance of influence of one factor over the other. In this study, factors were classified under two categories such personal factors and study factors. The study related factors are: Safe in making of e-gold investments Very quick liquidity of investments Ease in investments Each of the personal factors is compared with the study factor and chi-square test is applied at 5% level of significance. The results are presented with suitable hypothesis and suitable interpretations. Test of hypotheses Personal factors and e-gold investment factors The Table -3 shows that the hypothesis is accepted (Not Significant) in one case and the remaining four cases the hypothesis is rejected (Significant). It is concluded that except marital IRJBM (www.irjbm.org ) May- 2014 - Volume No V Page 60
status all other personal factors considered for the study have significant influence on the e-gold investment factors. 2.3 (C) Weighted Average Score Analysis of Investors Attitude The Weighted Average Score Analysis is depicted in Table 4. In order to use this technique, first the qualitative information is converted in to quantitative data through a five point scaling technique similar to Likert Scaling Technique. The weighted average score is calculated mainly to assess the level of opinion and awareness of the different categories of the respondents on various issues and the results are presented in different tables. In this study, weighted average score analysis was prepared for ranks which are given by the respondents. In applying the above tool, the quality characteristics were converted into numerical value by using five point scaling. In the three point scaling technique, a score of three is highly satisfactory, score two is given for satisfactory and score one is given for not satisfactory. Based on the score, the weighted average score is calculated for each factor. It is understood from Table -4 that majority of the respondents prefer e-gold investment as it is easily affordable when compared to safety or transparency in pricing. Majority of the respondents prefer e-gold as it is easily affordable by them and they can even buy even one gram when compared to physical gold. 3. Findings of the Study The findings reveal that the respondents are from nuclear family and they prefer e-gold as investment and the investors buy gold in ornaments and majority of them buy gold from home and they prefer e-gold because of the transparency in pricing and it has much tax efficiency. The investors are of the view that Gold ETFs are required to hold equivalent quantity of gold bullion of 99.5% purity. In physical gold, the buyer has to ensure that he gets the purity he has paid for. The study also reveals that the investors consider e-gold is most efficient form of investment and it is a low risky venture, but its awareness level in India is considered to be moderate. Majority of the investors consider professional advice as the source of information that drives them to make investment in e-gold. 3.1 Suggestions of the Study Source of Awareness The investor awareness programmes should be conducted to build awareness among the investors. In India awareness about e-gold is very moderate, hence adequate care must be taken to educate people about the benefits of e-gold rather than physical gold. If the financial sector has to grow it must be given due importance to create investor awareness. Security As all the matters can be dealt on-line the investors need to have adequate protection. It is all because of hackers who will hack all the details of the customers. Moreover, the Reserve Bank of India should consider the unit of gold as a pledge, so the investors can avail of loans from the banks. Safe return and Transparency The price of paper gold is completely transparent. The price of an ETF unit is linked to the price of one gram of gold. There are no making charges or premiums involved. Physical gold can be stolen and, therefore, needs to be stored in a locker. Gold ETF and e-gold units are held electronically in the demat form. The gold fund of funds can be either in the demat form or held with the custodian. Hence, investment in e-gold is highly suggested. Affordability Paper gold is suitable for investment purposes because it can be bought in small denominations of 1 gram. Some companies even offer 500 mg units. It is not possible to buy gold jewellery in very small denominations. The smallest ornament would weigh about 4-5 grams. IRJBM (www.irjbm.org ) May- 2014 - Volume No V Page 61
4. Conclusion From the study it is concluded that most of the people have invested in E-gold as it is the most efficient form of investment in gold. It assures safety to the investors. But the awareness level is moderate. It also helps the investors from worrying about the purity and quality of gold. Its mode of purchase is very fast as it needs to click of the mouse or a phone call to a broker and it is freely traded on stock exchange and the investors can trade it at any time. Hence, necessary steps have to be taken to educate the investors about investment in e-gold, so the financial sector of our Country can reap higher benefits out of the investor s investment in e-gold. 5. References 1. Mukesh Kumar (2012), Gold ETF Performance; A comparative Analysis of monthly returns, IUP Journal of Financial Risk Management, vol 9, Issue 2, pp.59-63. 2. Fisher (2008), Gold as an alternative asset class: five reasons to invest. 3. "Exchange-Traded Funds (ETFs)". Retrieved 2010-05-05.nsegold.com 4. "World Gold Council-value-market intelligence-supply & demand/recycled gold". Retrieved 2010-03-16. gold.org 5. "Supply and demand statistics /World Gold Council, gold market research, reserve asset and investment statistics". Retrieved 2010-03-16. Gold.org. Annexure Table 1 Investor s mode of purchase of gold Mode of purchase Number of respondents Percentage Gold Coins or Biscuits 53 27 Ornaments 79 39 E-Gold-Investment 41 21 ETF (Exchange Traded Fund). 27 13 Total 200 100 Source : Primary data using percentage analysis Table - 2 Table showing liquidation of gold investments Liquidation of investments Number of respondents Percentage Coins 65 33 Ornaments 64 32 E- Gold 60 30 ETF( Exchange traded fund ) 11 5 Total 200 100 Source : Primary data using percentage analysis IRJBM (www.irjbm.org ) May- 2014 - Volume No V Page 62
Table 3 Chi-Square Analysis -Personal factors and e-gold investment factors Personal Factors Chi-Square Values P values Significant/ Not Significant Age 18.817 0.000* S Gender 17.097 0.047* S Marital Status 2.508 0.474 NS Educational Qualification 76.406 0.000* S Family Monthly Income 13.738 0.003* S * S-Significant (p value 0.05); NS- Not Significant (p value >0.05) Source: primary data using spss Table - 4 Table 4: Average Score Personal Factors and investor s preference towards e-gold Personal Factors Transparency Affordability Assurance of purity Safety Liquidity Below 25 2.94 3.63 3.72 3.36 3.26 Age (years) 25 to 45 3.13 3.56 3.35 3.33 3.54 45 to 65 3.59 3.55 3.27 3.74 3.28 65 above 3.28 3.65 3.3 3.70 3.87 Gender Marital Status Male 3.17 3.17 4.08 3.57 3.62 Female 3.25 3.28 3.61 3.44 3.85 Married 3.29 3.38 3.51 3.60 3.85 Unmarried 3.07 3.83 3.5 3.45 3.46 No formal education 3.37 3.29 2.63 3.60 2.36 Educational Level School level 3.04 3.51 3.5 3.53 2.78 College level 3.35 3.87 3.65 3.51 3.56 Professional Level 3.42 3.42 3.52 3.58 3.48 Agriculture 3.39 4.2 4.6 3.2 4.6 Occupational Status Business/self employed 3 3.25 4.5 3.45 3.65 Government employee 3.22 3.36 3.8 3.4 3.26 Private sector employee 3.14 3.69 3.58 3.42 3.45 Others 3.42 3.46 3.17 3.93 3.64 Monthly Income Upto 20000 2.64 4.67 4.5 4.67 3.26 20000-30000 3.10 3.64 3.93 3.57 3.62 30000-40000 3.31 3.36 3.48 3.75 3.42 IRJBM (www.irjbm.org ) May- 2014 - Volume No V Page 63
40000 and above 3.03 3.64 3.57 3.32 3.28 Upto 2 members 4.26 3.80 3.20 3.46 3.69 Size of Family 3 3.42 4.11 3.17 3.25 4.67 4 4.32 3.69 3.29 3.4 3.82 Type of Family 5 and above 4.63 3.26 3.45 3.93 3.45 Nuclear family 3.96 3.85 3.87 3.96 3.52 Joint family 4.25 4.12 3.65 3.59 3.89 Source: Primary data using spss Fig 1 Ways to liquidate gold investments IRJBM (www.irjbm.org ) May- 2014 - Volume No V Page 64