MCX Launches Gold Mini Options: Know How It Can Benefit You

• 13 Aug
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People across our country use various means to multiply their money and get the best out of their finances. Some invest in traditional methods like PPF and fixed deposits. Yet others go for slightly bolder options and take calculated risks in mutual funds. This gives them enhanced returns too. However, investing in gold and bullion is a traditional and time-tested method to invest your money in something which is bound to give great returns over time.

When gold increases in monetary value, it provides profits and positive returns to the investor. In case its value decreases, you can always exchange more gold in return. Essentially, you can never go wrong with an investment in gold bullion.

This is why the Multi Commodity Exchange of India (MCX) has recently come up with a new investment program in gold – the Gold Mini Options Contract.

What is the Multi Commodity Exchange of India?

The MCX scheme essentially enables an investor to invest in small amounts of gold (hence the name Gold Mini); 100 gms to start with. The complete program name is Gold Mini Options Contract with Gold Mini Futures as the principal investment component.

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This is an investment scheme that is very easy to implement and invest in. It allows everyone from small investors, businessmen, middle-level jewellers, traders, and other stakeholders to benefit from it. It is no wonder then that this investment program became a huge hit when it was announced. Since April 25, 2022, its launch date, it first generated a turnover of over 66 crores, followed by second day turnover of 95.41 crores.

This is India’s only financial institute that allows individuals to trade or exchange commodities, like buying and selling gold and silver coins. These commodities chiefly comprise precious metals like gold and silver as above. The Ministry of Finance, the Government of India, governs it.

A Brief Description of This Gold Investment Program

Gold investment programs are of several types and typically use larger quantities of gold as the underlying base investment. But this program – the Gold Mini Options Contract – uses merely 100 gm of gold as the underlying initial investment quantity. The underlying asset value is also calculated based on the price of 100 gm of gold. Thus, this basic underlying price becomes the option price and not any other premium or discounted absolute spot price. Any future price escalations of gold will mean a profit for the investor. The absolute spot price of gold is its current price at the time of trading. The basic underlying price is the monetary value of gold at the time of initiating the investment.

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The other gold investment programs like Gold Petal and Gold Guinea are regular gold contracts that need a minimum trading amount equivalent to 1 kg gold. These MCX-approved bullion contracts are used by a diverse range of traders and jewellers throughout the country to obtain quality-assured exchange values of precious metals like gold and silver. These gold option contracts are also used for future pricing and hedging purposes by these market participants.

The MCX earlier had received a lot of feedback from different sections of the market and other stakeholders about the need to have investment programs in gold whose initial investment does not begin in huge quantities.

Having a relatively smaller initial underlying price, this program is more suited to all types of investors, more so small businessmen, jewellers, and traders. The masses received it very well, and this led to decent turnovers immediately after its launch in April this year.

Some Important Advantages of This Program:

This program was created and launched based on wide customer and market-participant feedback.

Its chief benefit is the small initial investment needed. Earlier, people who wished to trade and profit from precious metals like gold needed considerable sums of capital for the investment expenditure. But this program allows small traders and people with limited financial resources to benefit from gold price escalations too.

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With the Gold Mini Option, everyone can participate in trading in extremely high-valued commodities like gold with a small initial monetary investment.

For example, even at the rate of more than INR 50,000 per 10 gm, you initially need just a little over INR 10,000 to invest in and begin trading in gold.

It offers its investors the opportunity to trade in the future:

The prospective future market value of any asset, including gold, is almost always more than its current spot value. This difference in value allows investors to trade in gold for consecutive periods of time. Also, he can earn handsome profits from such trading.

The Gold Mini Option plan considers the price of 100 gm gold as its underlying.

There are plenty of opportunities for people to trade and invest in gold over periods of time and get higher monetary values over such time periods.

Future Settlement:

You might not want to trade in your gold as part of the mini investment amount. Instead, you might want to settle for the higher value of gold at a future date and encash on the increased monetary returns. This arrangement is also possible as part of this gold mini investment option. But for this to happen, you have to first provide a ‘not to exercise’ instruction.

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To understand this better, we have to first understand ITM (In The Money) and deep ITM options. These are monetary options that take advantage of the increasing change in the monetary value of any commodity, in this case, gold. The ITM option represents the inherent or intrinsic monetary value of gold at a particular point in time. If you compare the current gold price to that in the future, there will almost always be a rise in its price.

The ITM and deep ITM options take advantage of such future price rises. But if an investor wishes to have a future settlement of gold, either for cash or as an increase in quantity, he has to first provide a ‘not to exercise’ the ITM option instruction. This means that successive increases in the monetary price of gold are not to be considered for the purpose of further trading in gold. This is in favor of a one-time settlement of the gold value at a future date.

No Risk of High Losses:

There are some investment options like putting money into mutual funds that come with considerable risk. Even the stock market can get volatile at times, and you might end up losing the invested money. But this is not the case when you invest in small quantities of gold. In this case, if the future market rate of gold falls, you only lose a small portion of your premiums, that is, the difference between the spot value of gold at the time of the investment and its future value, in case it falls.

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On the other hand, however, you can essentially make limitless profits when you successively continue trading in gold as part of this investment scheme. With respect to the Gold Mini Investment option, the losses that you incur, even if they happen, are significantly lesser. This makes it a very safe and convenient option for investors, particularly small investors for whom every penny counts.

The Customisable Hedging Benefit to Institutions:

In simpler language, hedging is a means of risk assessment and risk reduction. Here, you buy an asset guaranteed to provide you with more stable returns. This allows reducing the risk of the unstable market value of other assets. Traditionally, investment in gold in any form and of any quantity seems always safe. It looks guaranteed to provide a positive return on investment in the long run. This is why many institutions always have at least one bullion investment in their portfolio. This assists in reducing the risk of volatile behavior of other assets and investments and obtaining customizable hedging benefits.

Having a relatively smaller initial underlying price, this program is more suited to all types of investors, more so small businessmen, jewellers, and traders. The masses received it very well and achieved decent turnovers immediately after its launch in April this year.

The Target Audience - Who Does This Program Cater To?

The Gold Mini Option is essentially for the small and medium-level businessmen who have limitations on the amount of capital they can invest in. Such small businessmen might not know how to sell gold jewellery and gain monetary benefits. Big businessmen usually have other better options for investments in gold.

The Gold Mini Future Option investment plan specifically belongs to the small traders, jewellers, and businessmen. These are the people who are looking for risk-free investment options wherein losses are minimal. But there are otherwise good returns on investment. Apart from trading in gold, such individuals can also get instant cash against the amount of gold invested. They can exercise an option called the future settlement in order to do so.

How Does This Scheme Offer You Good Returns on Investment?

This investment scheme is a great example of how to sell gold jewellery when its prices are rising and make the most of increased monetary returns. Such schemes are also beneficial for gold and silver coin buyers. They can encash returns on their investment and use it for the above.

Traditionally, whenever you try to sell the gold ornaments you possess, you will not receive a certain value. These are the deductions made by the jeweller while you sell gold. These could be due to either workmanship or making charges. In some cases, they also consider the depreciation against gold.

But there is no need for any such deduction when you invest in gold bonds or schemes like the Gold Mini Future option as above.

So, do you wish to get instant cash on your gold? Do you wish to not have any deduction while selling gold?

Gold purchases involve both financial and emotional considerations. When someone decides to sell gold, they always try to receive the highest possible price. Customers should select a company that offers them the best price for their gold because doing so is in their best interests. At 24Karat, our goal is to offer our clients the best price for their gold. Therefore, as we have been in the business for a long time, if you are wondering where to sell gold and silver coins or any other silver and diamond products, you can surely come and see us. By utilizing cutting-edge technology to determine the precise gold value, we concentrate on giving consumers the best services.