What is the Gold Monetisation Scheme?
In India, gold has historically been the trusted currency for wealth preservation and to tide over bad times. It is no surprise that India is one of the largest consumers of gold worldwide. From an investment perspective, gold earns a return only when it is sold. There is no interest or other income from gold, and it remains an idle asset.
Gold Monetisation Scheme aims to help gold buyers earn a return on their gold investments. It also serves the purpose of channelling idle gold to be part of the country’s gold reserves, thus reducing the gold import burden.
With this in mind, let us understand more about the Gold Monetisation Scheme, the Interest rates of the Gold Monetisation Scheme, and how you can benefit from it.
What is the Gold Monetisation Scheme?
The Government of India launched the Gold Monetisation Scheme in 2015. Not only did it replace the Gold Deposit Scheme, 1999, but it also is a modification of the existing Gold Deposit and Gold Metal Loan schemes. The Gold Monetisation Scheme (GMS) allows you to deposit your idle gold with a Reserve Bank of India (RBI) designated bank and earn interest on the same.
The gold is accepted at the Collection and Purity Testing Centres (CPTC) and certified by the Bureau of Indian Standards (BIS). The deposit certificates are issued by banks in the equivalent of 995 fineness of gold.
The Objective of the Gold Monetisation Scheme
The Gold Monetisation Scheme aims to help you earn interest on the unused gold in your bank locker. It intends to mobilise gold held by families and institutions, facilitate its use for productive purposes, and reduce the nation’s dependability on gold imports in the long run.
India is the world’s second-largest importer of gold after China. In 2020, India imported gold worth $ 22 billion, which doubled to $55 billion in 2021. These gold imports contribute to India’s widening current account and trade deficit. Consequently, a high import bill will weaken the currency – a situation best avoided.
Hence, the Gold Monetisation Scheme contributes to economic growth and nation-building by capturing idle gold assets to reduce import bills.
All Resident Indian individuals, HUFs, proprietorship & partnership firms, Trusts, SEBI-registered mutual funds/ETFs, companies, charitable institutions, and government institutions are eligible to invest in the Gold Monetisation Scheme.
As an eligible depositor, you can open your gold depositor account with an empanelled bank after meeting the KYC norms.
Gold Monetisation Scheme Features
Here is a walkthrough of the key features of the Gold Monetisation Scheme.
- Investment Quantity: The minimum deposit at any one time shall be 10 grams of raw gold (bars, coins, and jewellery excluding stones and other metals). There is no maximum limit for deposits under the scheme.
- Investment Mode: You can subscribe to the scheme through designated banks. The gold deposited will undergo testing at the Collection and Purity Testing Centres accredited by BIS (Bureau Of Indian Standards). After that, a certificate in the 995 purity of the gold will be issued to you.
- Tenure: There are three plans under the scheme based on the duration:
- Short Term Bank Deposit for a tenure of 1-3 years.
- Medium Term Bank Deposit for a tenure of 5-7 years.
- Long Term Government Deposit for a tenure of 12-15 years.
The short-term deposits are held with the bank. On the other hand, medium-term and long-term deposits are accepted by banks on the government’s behalf.
- Redemption: You can redeem the principal at maturity in the following ways:
- Indian rupee equivalent to the value of deposited gold at the time of redemption.
- You can also redeem your principal in gold. Once the purity of the gold jewellery is ascertained, the gold jewellery is melted and converted into bullion or gold coins. Thus, if an individual deposits jewellery like gold bangles or necklaces, then at the time of maturity the bank will not return the deposited gold in the same form. Further, in case of redemption in gold, any fractional quantity (for which a standard gold bar/ coin is not available) would be paid in cash.
- Premature Withdrawal: A Medium Term Deposit is allowed to be withdrawn at any time after 3 years and a Long Term Deposit (LTGD) after 5 years. Any premature redemption under Medium or Long Term will be made in INR only.
The designated banks may, at their discretion, allow whole or part premature withdrawal of the deposit subject to a minimum lock-in period and penalties. In the case of Short Term Deposits, any premature redemption is done in Indian rupee equivalent or gold at the discretion of the designated bank.
- Interest Rate: Banks declare the interest rate for short-term deposits based on market factors. The interest rate on Gold Monetisation Scheme for the medium and long term is decided by the government, in consultation with the RBI from time to time. The current rate of interest on medium-term deposits is 2.25% p.a. and on long-term deposits is 2.50% p.a.
- Calculation of Interest: The interest earned in GMS is paid in rupee. For instance, if a person has invested 50 gms at the value of Rs. 1.50 lakh for 6 years, and the interest rate is 2.5%, then the interest earned is Rs. 3750.
Gold Monetisation Scheme Benefits
- The scheme allows you to earn a return on gold jewellery, coins, etc., sitting idle in your locker.
- It saves you time, effort, and money for handling physical gold and its safekeeping.
- You don’t need a large quantum of gold to invest in the scheme; it is available from a minimum quantum of 10 grams.
- There is no capital gains tax on maturity proceeds from the Gold Monetisation Scheme. The interest earned is also tax-exempt.
How to Apply for a GMS Account
You can open a Gold Monetisation Scheme account with designated bank branches after you meet KYC requirements
- You are required to make deposits at the GM’s mobilisation, collection and testing agent (GMCTA). These are jewellers or refiners certified as Collection and Purity Testing Centres (CPTC) by the Bureau of Indian Standards.
- These testers will test the purity of your gold deposits in your presence and issue receipts of the standard gold of 995 gold fineness to you.
- Your bank will be notified of the deposit receipt.
- In the next stage, your bank will allocate a Gold Monetisation Scheme account to you.
- The account will be credited either the same day of receiving the deposit or within 30 days of you depositing gold at the CPTC.
Gold Monetisation Scheme is a golden investment opportunity for anyone holding physical gold and wanting to earn returns without selling. You can earn good interest income and appreciation from the increase in gold prices over the long term. Moreover, the scheme is backed by the government and promises high safety.
FAQs about Gold Monetisation Scheme.
Which banks offer Gold Monetisation Scheme?
The government has designated a few banks to offer the scheme. Currently, ICICI Bank, Indian Overseas bank, State Bank of India, HDFC Bank, Punjab National Bank, Yes Bank, Bank Of Baroda, and Union Bank Of India offer Gold Monetisation Scheme.
Who can deposit gold under the Gold Monetisation Scheme?
Resident Indians [Individuals, HUFs, Proprietorship & Partnership firms, Trusts including Mutual Funds/Exchange Traded Funds registered under SBI (Mutual Fund) Regulations, Companies, charitable institutions, Central Government, State Government or any other entity owned by Central Government or State Government].
Can I make withdrawals from the scheme before maturity?
Yes, you can withdraw from the Gold Monetisation Scheme deposit before maturity but only after the initial lock-in period.
Are there different tenures for the scheme?
Yes, you can invest in the scheme for three different investment tenures. The short-term deposits are for 1-3 years, the medium-term for 5-7 years, and the long-term for 12 – 15 years.
Do I need to open a savings account with the bank for opening a Gold Monetisation scheme?
Yes, you need to have an account with the designated bank. If you do not hold an account, you can open a savings account and sign up for the Gold Monetisation Scheme.