In many Indian households, there are tonnes of gold that are lying idle. To turn this unused gold into productive assets, the Government of India has launched a scheme in 1999 called the Gold Deposit Scheme (GDS). However, in the Union Budget (2015-2016), the government launched the Gold Monetisation Scheme (GMS) to replace the Gold Deposit Scheme. In this article, we will discuss in detail the Gold Deposit Scheme.
What is a Gold Deposit Scheme?
The Government of India launched this scheme in 1999. The Gold Deposit Scheme (GDS) works like a bank fixed deposit where the individual deposits gold with the bank (instead of money) for a fixed tenure at a predetermined interest rate. It allows individuals to deposit gold that is lying idle under this scheme. In return, the depositor earns interest on the idle gold, gets safety and tax benefits.
This scheme aims to mobilize the idle gold in the country and put it to productive use. Also, it gives individuals an opportunity to earn interest on idle gold holdings. Moreover, the minimum quantity to deposit under this scheme is 500gms, and the period of deposit can be 3, 4 or 5 years. Furthermore, one can deposit the gold in the form of gold bars, coins or jewelry in a scrap form.
The Gold schemes include the Indian Gold Coin Scheme (IGC), Sovereign Gold Bond (SGB), and the Gold Monetisation Scheme (GMS). One can invest 2 units or 2 grams of gold in these schemes coming with a tenure of 8 years.
What is a Gold Monetisation Scheme?
The Government of India launched the Gold Monetisation Scheme in 2015. Prime Minister Narendra Modi launched this scheme to mobilize gold and facilitate its use for productive purposes. Further, this will help in reducing India’s dependability on gold imports. GMS was announced to replace the existing Gold Deposit Scheme (GDS) (1999) and Gold Metal Loan (GML) Scheme (1998). Therefore, Gold Monetisation Scheme is the combination of the best features of both schemes.
Another notification that the central bank has clarified that the GMS will replace the existing GDS (1999). Also, deposits outstanding under GDS will continue to run until maturity unless prematurely withdrawn by the depositor.
Revamped Gold Deposit Scheme (R-GDS)
The Gold Monetisation Scheme includes the Gold Deposit Scheme. The GMS is available at all banks. The deposits under this Scheme shall be made at CPTC (Collection and Purity Testing Centre), authorized by the Bureau of Indian Standards. The principal and the interest earned under this scheme are denominated in gold. Also, this scheme has a minimum lock-in period and penalty depending on the bank. Furthermore, there are three types of deposits under GMS:
Check out latest Fixed Deposit Interest Rates by all Banks
|Type of deposits||Tenure|
|Short Term Gold Deposit (STGD)||1 – 3 years|
|Medium Term Gold Deposit (MTGD)||5 – 7 years|
|Long Term Gold Deposit (LTGD)||12 – 15 years|
Who can Invest in a Gold Monetisation Scheme?
All resident Indians are eligible to invest in Gold Monetisation Scheme (or R-GDS). They are –
- Individual – single or jointly
- HUF (Hindu Undivided Family)
- Trust – includes Mutual Funds/Exchange Traded Funds registered under SEBI
- Sole proprietorship or partnership Firm
- Charitable institution
What are the Features of a Gold Monetisation Scheme?
The following are the features of the Gold Monetisation Scheme –
- Tenure: One can invest in a Gold Monetisation Scheme for a short, medium and long tenure. For short tenure, the duration to invest in 1 to 3 years. Similarly, for medium and long term tenure, the duration is 5 to 7 years and 12 to 15 years respectively.
- Interest Rate: The interest rate varies from bank to bank based on the tenure of the investment. One can earn up to 2.50% p.a by investing their idle gold.
- Minimum Deposit: The minimum deposit that one requires under this scheme is 30 grams of 995 fineness gold. Gold can be in various forms, such as coins, jewellery and gold bars. Unlike many other schemes, there is no maximum limit of deposit under this scheme.
- Forms of Investment: Investing gold for a shorter tenure allows the investor to choose between getting the physical gold or cash at the time of maturity. However, if the individual invests in a medium or long term scheme, then the current value of gold is paid in cash.
- Maturity payment: The interest earned in GMS is paid either in grams or rupee form. For short term investment, the interest and principal are paid in gold or Indian rupees. However, for medium and long term investment, the interest and principal are payable in the form of cash. Also, the principal will be paid on the gold rate prevailing at the time of maturity. The form of payment has to be decided at the time of deposit.
- Nomination Facility: This scheme also allows the selection of a nominee for the account in a single name only.
- Loan Facility: One can avail of a loan against their gold scheme in case of any financial requirement. A loan amount up to 70-75% of the notional value of gold can be taken as a loan.
Things to Keep in Mind Before Investing in a Gold Monetisation Scheme
The following are the things to consider before investing in a Gold Monetisation Scheme.
Safety with returns
In India, the most common practice among people is that they keep the gold in the bank lockers as they are considered safe in banks. Generally, gold is used during weddings or financial emergencies. However, while gold is safe in the bank lockers, the negative side is that one has to pay fees/ charges to secure their gold. On the contrary, if one invests in a gold monetisation scheme, they can easily store the gold safely and earn returns at the time of maturity of the scheme.
To invest in a gold monetisation scheme, one doesn’t need a specific form of gold. They can invest in gold bars, coins and jewellery. Also, there is no maximum limit that one can invest in this scheme. Furthermore, there is flexibility to choose the tenure of the deposit. Hence, one can invest based on their investment objective.
Calculation of Interest:
The interest earned in GMS is paid either in grams or rupee form. For short term investment, the interest is paid in grams form. For instance, if the interest rate is 1% and a person has invested 200 grams of gold, the person will earn 2 grams per annum as interest. However, for medium and long term investment, the interest is payable in the form of cash. 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.
Withdrawal of Deposit:
Those who invest in short term gold deposits can specify whether they want returns in cash or physical gold. Moreover, the choice must be made at the time of deposit. If the investor chooses to have returned in the form of physical gold, they will get gold coins or bars in 995 fineness at the time of maturity. Therefore, one cannot get the jewelry back in the form they had deposited them. This is because banks convert the gold deposited into bars with investor’s consent. Further, they send it to Metals and Minerals Trading Corporation of India (MMTC) for minting India Gold Coins or sell it to jewellers.
One of the exclusive benefits of this scheme is that one need not pay capital gain tax on making a profit under the gold monetisation scheme. Also, capital gains are exempted from wealth tax and income tax.
Under the gold monetisation scheme, the government of India has permitted more than 300 gold purity centres for testing the purity of gold. To open an account under this scheme, one must visit the nearest collection and purity testing centre for a purity and weight test. A receipt is generated mentioning the quality and purity of gold to be deposited. This receipt has to be presented at the time of depositing gold.
Therefore, banks play a crucial role as customers deposit based on trust and confidence to deal with the outcome for many years. Investors should be aware of what they are getting into and which bank they choose for GMS.