India’s affinity towards gold is known to the world. For centuries, the precious metal has been an important part of its traditions and culture. The country along with China is one of the largest gold consuming markets, in terms of volume. According to the reports published by the World Gold Council, India is the largest consumer of gold jewellery. However, in this country, most gold is used for consumption rather than an investment.
As per estimates, more than 30,000 tonnes of gold is sitting idle in bank lockers. Indian government has many times tried to monetize this gold. In fact in 1999, Gold Deposit Scheme (GDS) was launched by the government for the same purpose but due to its high minimum deposit, which was of 500g, the scheme didn’t hit off well with people. Besides, Indians are emotionally attached to their gold jewellery and if they invest in such schemes they’ll never get their ornaments back at least in the same state. Therefore, they are reluctant to invest in such schemes and programs.
Even after the failure of previous gold schemes, the government is relentless in monetizing household gold. In another attempt to reach its goal, the government launched Gold Monetization Scheme (GMS) in 2015. Read on to know more about the scheme that changed the way India invested in Gold.
Q. What is Gold Monetisation Scheme?
A. Gold Monetisation Scheme (GMS) is a gold savings account that anyone can open with any bank of their choice. It allows you to benefit from the value in your gold holding by earning interest, which is calculated on the basis of gold’s weight and the rate prevailing on the date gold deposit was made. Physical gold in any form, i.e., ornaments, coins or bars is allowed to be deposited in the account.
Q. How does it work?
A. When you bring gold (jewellery) to the bank that has implemented this scheme, it will be first tested for purity by the concerned authorities. Next, the authorities will ask for the depositor’s consent to melt their gold deposit. On receiving the consent, the yellow metal will be melted in your presence. The depositor will receive a certificate by the collection centre stating the amount and purity of the deposit. This certificate will later have to be presented in the bank to open the Gold Savings Account. Once the account is active, the metal will be credited into the depositor’s account. The banks may also ask you to complete the KYC (Know Your Customer) process. The deposited gold will be lent by banks to jewellers at an interest rate little higher than the interest paid to customer.
Q. Who all are eligible for this scheme?
A. The following Indian residents can deposit gold under this scheme:
- Hindu Undivided Family (HUFs)
- Proprietorship and partnership firms
- Trusts including Mutual Funds/ETFs registered under SEBI (Mutual Fund) Regulations and Companies
Q. Are joint deposits allowed?
A. Yes. Joint deposits of two or more eligible depositors are allowed under the scheme.
Q. What are the different types of deposits under the scheme?
A. There shall be two gold deposit schemes held by bank on behalf of the Central Government – Short Term Bank Deposit (STBD) and Medium and Long Term Government Deposit (MLTGD).
Q. What is the deposit limit under GMS?
A. To encourage even small deposits, people interested in this scheme can deposit raw gold (jewellery, bars, coins, excluding stones and other metals) of the quantity as little as 30g with 995 fineness. Also, there is no maximum limit for this scheme.
Q. What is the applicable rate of interest on my deposits?
A. The applicable rate of interest as decided by the government and notified by the RBI (Reserve Bank of India) is as follows:
- Short Term Bank Deposit (STBD) – The interest rates are at the discretion of the banks.
- Medium Term Deposit (MTD) – 2.25% p.a.
- Long Term Deposit (LTD) – 2.50% p.a.
Q. When will the interest accrual start on my deposit?
A. Interest on deposits under the scheme will start accruing from 30 days after receiving the gold at the PVC. The same would be the start date of your gold deposit.
Q. What is its tenure for which deposit can be placed?
A. The minimum and maximum tenure of the gold deposits is as follows:
- Short Term Bank Deposit (STBD) – 1-3 years (with a roll over in the multiples of one year)
- Medium Term Government Deposit (MTGD) – 5-7 years
- Long Term Government Deposit (LTGD) – 12-15 years
Q. Can I withdraw the deposit prematurely?
A. Yes. The scheme allows customers to withdraw their deposits prematurely after they complete the minimum lock-in period.
Q. What is the minimum lock-in period for this scheme?
A. Customers can withdraw their deposits any time after the lock-in period, which is:
- At the bank discretion for Short Term Bank Deposit
- 3 years for Medium Term Government Deposit (MTGD)
- 5 years for Long Term Government Deposit (LTGD)
Q. How will the principal and interest be denominated at the time of redemption?
A. For Short Term Bank Deposit (STBD), redemption can either be in rupee equivalent or gold. Whereas, for Medium and Long Term Government Deposit (MLTGD), redemption will be only in INR equivalent of the value of gold as per the then prevailing price of gold.
Q. Is nomination available for this scheme?
A. Nomination is available but only for deposits in single names in individual capacity.
Q. Is there any tax benefit under this scheme?
A. Yes, the interest earned on the gold deposit will be exempted from not only income tax but also capital gains tax.