Gold is the staple status commodity of India. India is one of the largest importers of gold in the world and holds approximately of the total gold reserves. However, the majority of this gold is stored in the bank lockers with a return value only upon sale. The demand for gold in India has risen steadily over the past few decades but the prices for gold have increased multiple times over the years, especially during the recent pandemic when the gold prices reached unprecedented heights in the wake of market uncertainty.
In order to make optimum utilization of this invaluable asset, the Government of India has introduced the Gold Monetization Scheme in the year 2015. This scheme will allow the investors to earn returns on their gold which would have otherwise been idle as well as encourage them to invest in gold in any form. (bullion or jewellery). The gold will earn interest on the gold weight as it is lent to banks for a higher rate of interest.
The table below highlights some of the key aspects to know about GSM:
Feature | Description |
Eligibility | Any resident Indian including IndividualsHUFsTrustsMutual Funds/Exchange Trade Funds registered under SEBI (Mutual Fund) RegulationsCompaniesCharitable InstitutionsCentral GovernmentState GovernmentAny other entity owned by Central Government or State GovernmentJoint Accounts are also permitted |
Entry age | For adults – Above 18 years |
Fee Structure (Account Opening Fee & Maintenance Charges) | The minimum investment under the scheme is 10grams of raw gold.No maximum limit of investment.1.5% handling charges paid to designated banks by the Central Government and commission of 1% of the rupee equivalent to the amount of gold mobilized under the scheme. |
Interest | Depending on the type of deposit |
Exit option / Liquidation of policy | Allowed only after completion of lock-in period |
Nomination Facility | This facility is available under GMS |
The aim of GMS is to encourage investors to invest their gold with this scheme and earn interest over a period of time. This scheme also aims to eventually reduce the dependence of the country on gold imports. Some of the noteworthy benefits of GSM are:
This investment is a relatively low-risk investment as the gold deposited is kept secured by the partner banks and the scheme is a government-backed scheme. The risk of the investment is linked to the value of gold in the market.
The returns of the gold monetization scheme are in the form of interest that can be earned in the form of INR for short term gold deposits (STGD) or medium and long term gold deposits (MLTGD). The current rate of interest for STGD and MLTGD are mentioned below.
STGD | MTGD | LTGD |
At the discretion of the partner bank | 2.25% (decided by Central Government) | 2.50% (decided by Central Government) |
An investment in the gold monetization scheme is completely tax-free. The interest earned on the deposits as well as the increase in the value of the gold will not attract any income tax, wealth tax, or capital gains tax. This makes it a very attractive investment option for investors.
The lock-in period under this scheme depends on the type of deposit made. The lock-in period for each category of deposits is tabled below.
STGD | MTGD | LTGD |
At the discretion of the partner bank | 3 years | 2.50% (decided by Central Government) |
The withdrawal from the scheme can be after the lock-in period and is in terms of gold or INR depending on the type of deposit. The details of the withdrawals are tabled below.
STGD | MTGD | LTGD |
In the form of INR or Gold at the discretion of the partner bank | In terms of INR | In terms of INR |
The gold deposited by the investors is assayed and the investor will be provided a deposit receipt of standard gold of 995 fineness. The capital investment is under a government-backed scheme and hence secured.
Like many government-backed schemes, the gold monetization scheme also does not account for inflation in the returns provided under the scheme.
There are essentially two main categories of deposits under GMS namely, short term gold deposit (STGD) and medium and long term gold deposit (MLTGD). The details of these deposits are tabled below.
CATEGORY | SHORT TERM GOLD DEPOSIT | MEDIUM TERM GOLD DEPOSIT | LONG TERM GOLD DEPOSIT |
Minimum gold deposited | 10gms of raw gold (bars, coins, jewellery excluding stones and other metals)No maximum limit of deposit | 10gms of raw gold (bars, coins, jewellery excluding stones and other metals)No maximum limit of deposit | 10gms of raw gold (bars, coins, jewellery excluding stones and other metals)No maximum limit of deposit |
Interest rate decided by | Partner Bank | Central Government | Central Government |
Tenure | 1-3 years | 5-7 years | 12-15 years |
Current Interest rates | As per Bank Discretion | 2.25% p.a. | 2.50% p.a |
Penal Interest | At bank discretion | >3 and <5 (MTGD interest less 0.375%)>=5 and <7 (MTGD interest less 0.25%) | >5 and <7 (MTGD interest less 0.25%)>=7 and <12 (LTGD interest less 0.375%)>=12 and <15 (LTGD interest less 0.25%) |
Minimum Lock-in | At bank discretion | 3 years | 5 years |
Principal denominated in | Gold | Gold | Gold |
Interest denominated in | INR | INR | INR |
Here are the eligibility criteria for the Gold Monetisation Scheme:
The process of setting up an account under GMS is explained below.
The pre-requisite for investing in GMS is having a savings or current account with a partner bank.
The steps to open a deposit under GMS with the partner bank is mentioned below.
1. Is gold received in the same form as it was deposited?
A. No. The gold deposited is assayed and melted, hence, it cannot be returned in the same form.
2. Can a joint account be opened under GMS?
A. Yes, depositors are allowed to open joint accounts under GMS.
3. How is the redemption amount received under MLGTD?
A. Under the MLGTD scheme, the amount received at the time of redemption will be provided in the following manner.
Principal | In INR (equivalent to the value of gold at the time of redemption) or in gold |
Interest | Paid in cash |
4. What is the minimum value of gold to be deposited under GMS?
A. The minimum value of gold to be deposited under GMS is 10 grams of raw gold (bars, coins, jewellery excluding stones and other metals)
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