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!
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.
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.
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.|
Some advantages of the GMS are listed below:
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.
Keeping unused gold in gold deposits can help earn interest.
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.
The returns from the scheme are not subject to any taxes.
The depositor can choose their preferred mode of redemption at the time of opening the deposit. It can be either cash or gold.
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.
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.
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:
There are numerous advantages of using the gold monetisation scheme to deposit gold. They are listed below:
Listed below are the points you should consider before investing in a gold monetisation scheme:
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.
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.
What is Sortino Ratio – Formula and Calculations with ExamplesSortino ratio is a statistical tool that helps measure an investment’s performance during a downw... Read More »
What is Forfaiting – Benefits and Process with StepsForfaiting is a financial process involving the management of finance exports. It aids businesses b... Read More »
EPF Interest Rate 2022-23Employee Provident Fund or EPF has been popular among salaried individuals for a long time now. It ... Read More »
How to Open, Transfer or Close a PPF Account: Eligibility and DocumentsPPF (Public Provident Fund) investments come with many benefits. You get to enjoy assured returns, ... Read More »
What is an Affidavit – Features, Types, Format and SampleAn affidavit is a sworn written statement, made especially under affirmation or oath befo... Read More »
What is Employee Stock Ownership Plan (ESOP): Scheme, Benefits, Taxation and TypesMost Indian companies, especially startups, offer a plethora of employee benefit plans in a bid to ... Read More »
Sukanya Samriddhi Yojana: Bank Interest Rates and How to Open One?Honourable Prime Minister Narendra Modi launched Sukanya Samriddhi Yojana as an important part of t... Read More »
What is a Prospectus – Working, Types and Use in Mutual FundsA prospectus is a legal document disclosing information regarding a public company seeking to raise... Read More »
A Step-by-Step Guide to UAN Generation and Activation ProcessThe Employee Provident Fund Organisation (EPFO) assigns a unique 12-digit number or UAN (Universal ... Read More »
EPF Vs PPF – Difference, Taxation and Where to InvestEmployees Provident Fund (EPF) and Public Provident Fund (PPF) are two of the most popular long-ter... Read More »
What is Systematic Risk and How can an Investor Control?Systematic risk refers to the inherent uncertainty that is present in all investments and is not sp... Read More »
All information is subject to specific conditions | © 2023 Navi Technologies Ltd. All rights are reserved.