Gold Monetisation Scheme – Features, Benefits and How to Invest
According to statistics, Indian households possess nearly 11-13% of global gold reserves! Nearly 25,000 tonnes of gold are lying unused. To mobilise this asset and benefit from it, the Government of India launched the Gold Monetisation Scheme in 2015.
This article provides a complete overview of the Gold Monetisation Scheme, its features and benefits and how to invest in GMS. Read on!
What is Gold Monetisation Scheme (GMS)?
The Indian Government launched the Gold Monetisation Scheme to productively use gold. Since maximum gold is held in lockers, it offers returns only when sold. The scheme helps investors place their gold in deposits and earn interest. It also motivates them to invest in more gold in jewellery or bullion.
The scheme’s goal is to reduce the Government’s dependency on gold imports and benefit the economy. Apart from gold owners, jewellers can also benefit from the scheme by having easy access to loans. Banks and NBFCs are also beneficiaries as they can monetise gold.
The gold monetisation scheme combines the best features of the gold deposit scheme of 1999 and the gold metal loan scheme of 1998. Some benefits of the scheme include savings on storage costs, returns on GMS deposits and respite for the Government from borrowing costs.
How Does Gold Monetization Scheme Work?
The first step in the gold monetisation scheme is to check gold purity through any hallmarking centres. The centre will provide a purity certificate based on their assessment. The Government will then use this certificate to open a gold savings account for the gold owner. It’s followed by KYC formalities.
The gold deposited in the account will attract interest yearly for the tenure chosen at the time of deposit. Gold owners must also mention whether they wish to redeem cash or gold. After the tenure completion, the bank pays interest based on gold weight.
For instance, if the interest rate is 2%, 100 gm of gold deposited for a year will yield 102 gms of gold, including interest. The minimum lock-in period in the scheme is one year, and gold owners can deposit as low as 10 gm to start their gold savings account.
Features of Gold Monetisation Scheme
There are three types of Gold Monetisation Schemes: short-term, medium-term and long-term government deposits. Gold owners need to deposit a minimum of 30 gm of gold in either bullion or jewellery form. It doesn’t include other metals or stones. No maximum amount is defined, and people can invest as much as they want in the scheme.
The table below shows other features of the scheme:
| Category | Short-Term Gold Deposit | Medium Term Gold Deposit | Long-Term Gold Deposit |
| Who holds the deposit? | The partner bank holds it in their books | The deposit is on behalf of the Central Government | The deposit is on behalf of the Central Government |
| Who decides the gold monetisation scheme interest rate? | Gold monetisation scheme banks | Central Government | Central Government |
| Tenure of deposit | 1-3 years | 5-7 years | 12-15 years |
| Current gold monetisation scheme interest rates | Varies based on the bank | 2.25% | 2.50% |
| Minimum Lock-in period | Varies based on the bank | 3 years | 5 years |
| Penal Interest | Based on bank policy | Greater than three and less than 5 (MTGD interest less 0.375%) | Greater than five and less than 7 (MTGD interest less 0.25%) |
| Greater than = five and less than 7 (MTGD interest less 0.25%) | Greater than = seven and less than 12 (LTGD interest less 0.375%) | ||
| Greater than = 12 and less than 15 (LTGD interest less 0.25%) | |||
| How is interest paid? | In the form of gold | Cash interest is paid based on the gold value at the time of making the deposit | Cash interest is paid based on the gold value at the time of making the deposit |
| In what form are principal and interest redeemed? | The depositor chooses whether they wish to redeem gold or cash at the time of deposit creation. | The principal is paid in the form of gold or cash based on the rate on the deposit maturity date. Interest is paid only in cash. | The principal is paid in the form of gold or cash based on the rate on the deposit maturity date. Interest is paid only in cash. |
Benefits of Gold Monetization Scheme
Some advantages of the GMS are listed below:
1. Productive Utilisation of Unused Gold
Households in India have a lot of idle gold. The objective of the gold monetisation scheme is to mobilise this gold. India’s jewellery and gems industry contribute significantly to Indian exports, and this mobilisation will help them further.
2. Gold Owners Can Earn Interest
Keeping unused gold in gold deposits can help earn interest.
3. Stress-free Storage
The scheme eliminates the difficulties of finding banking lockers or paying rent. It also helps to eliminate the fear of robbery by offering risk-free storage.
4. Tax Benefits
The returns from the scheme are not subject to any taxes.
5. Redemption Flexibility
The depositor can choose their preferred mode of redemption at the time of opening the deposit. It can be either cash or gold.
6. Reduce the Government’s Dependency on Gold Imports
The gold deposited will help to supplement RBI’s gold reserves. Thus, the Government can benefit from lower borrowing costs. Consequently, it will also reduce the reliance on gold imports.
Eligibility for Gold Monetisation Scheme
The eligible Gold Monetisation Scheme banks list includes all scheduled commercial banks and some private banks. Regional rural banks are not included in the list. The scheme is open only for resident Indians, with other eligibility criteria.
The entities eligible for the Gold Monetisation Scheme include individuals, HUFs, trusts, mutual funds and ETFs registered under SEBI regulations and companies, organisations, charitable organizations, joint accounts, state governments, central government and entities owned by central or state government. The same rules regarding customer identification apply to gold deposits and other deposit accounts.
Gold owners must also hold a current or savings account with the gold loan monetisation scheme to open a gold deposit account. It is necessary because the account will receive interest from the scheme. Thus, if they do not already have a savings or current account, they will have to open one with the partner bank after completing the KYC formalities.
The partner banks must also inform the Reserve bank of India if they wish to participate in the scheme. They must do it soon after the board approves the policy to implement the scheme. They must also report the total gold that all their branches mobilise monthly in a format prescribed by the Annex-2 of RBI.
How to Invest in Gold Monetization Scheme
Depositors must identify the partner bank they wish to open their gold deposit account with. It is easier to go with a bank with a savings or current account. They must open one if they don’t.
Next, they must enrol under the scheme by following the steps below:
- Go to the branch of the identified bank with your gold
- Fill out the gold monetisation scheme application form
- Branch executives will then give the counterfoil to the gold owner and direct them to the purity testing centre.
- The depositor must produce the counterfoil at the purity verification and testing centre.
- They will also have to produce the gold that will be assayed and melted.
- Once the testing process is complete, the purity verification and testing centre will give the depositor a receipt that contains the details of gold quantity and purity.
- This receipt will need to be provided to the branch through post or personally within 30 days.
- The branch must create the deposit 30 days after the purity centre receives the gold.
- Once the deposit is created, the branch will issue a deposit certificate mentioning
Why is Gold Monetization Scheme a Good Investment Option?
There are numerous advantages of using the gold monetisation scheme to deposit gold. They are listed below:
- Any unused jewellery or gold can be used to earn interest rather than putting in money and effort for its storage
- Apart from earning interest, the value of gold will also appreciate
- The gold will stay safe without having to pay locker charges
- Depositors have the choice to redeem their gold as cash or gold
- The earnings from the scheme are tax-free
Things to Consider Before Investing in Gold Monetisation Scheme
Listed below are the points you should consider before investing in a gold monetisation scheme:
- The depositor must have a savings or current account with the partner bank to open a gold deposit account with them. Depositors can benefit by applying to the same bank they have an existing relationship with.
- If the depositor doesn’t have an account, they can choose from the gold monetisation scheme banks list and fulfil the KYC norms first.
- The deposited gold will be melted, and depositors must only give gold they will not use.
Final Word
The gold monetisation scheme by the Government of India is an effective way to increase the country’s gold reserves by mobilising the unused gold lying in Indian households. It also helps gold owners to earn interest on their gold. Depositors must consider this scheme and save themselves from the hassle and expense of storing gold.
FAQs
Ans: Depositors can make long-term deposits, ranging from a duration of 12 to 15 years, under the gold monetisation scheme.
Ans: Most gold monetisation schemes come with a minimum lock-in period for investments, after which depositors can withdraw their gold.
Ans: The gold monetisation scheme offers an interest rate ranging from 2.25% to 2.50% based on the deposit chosen.
Ans: There are a total of 3 deposit schemes under the gold monetisation scheme. These are short-term bank deposits and medium and long-term government deposits.
Ans: Depositors can invest a minimum of 30 gm in GMS. There is no maximum cap on the gold that can be invested.
