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Introduction
The importance of gold in our country is huge. India is one of the largest importers of gold. It is said that approximately 11% of the entire gold reserves of the world are held by the Indian households. In order to properly utilize this asset, the government has initiated the Gold Monetization Scheme (GMS).
Under this scheme, the government enables gold owners/holders to earn an interest on their gold deposits. This scheme of the government is aimed at eventually reducing the dependency of the government on gold imports and thereby giving a slight push in improving our economy.
Features of the Gold Monetization Scheme
The government has introduced two types of Gold Deposit Schemes under this model namely the Short Term Bank Deposit (STBD) and Medium and Long Term Government Deposit (MLTGD).
The minimum amount of gold to be deposited under the scheme is 30 grams of raw gold in any form like bars, coins, jewellery but does not include stones and other metal. The bank has no upper limit on the amount of gold that a person can deposit under the scheme.
The usual duration to create the deposit from the time of acceptance at the refinery or the refiner’s purity testing centre is 30 days.
The principal (P) is denominated in grams of gold with purity of 995. The bank pays interest on the gold deposits annually on 31st of March on simple interest basis or on the date of maturity in which case the interest is compounded. The depositor has to exercise the option to receive payment of interest at the time of making the deposit i.e. at the time of the start of the scheme.
The other features of the Scheme are tabled below.
| Category | Short Term Gold Deposit | Medium Term Gold Deposit | Long Term Gold Deposit |
|---|---|---|---|
Deposit held by | In books of the Partner Bank | On behalf of Central Government | On behalf of Central Government |
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% | 2.50% |
Minimum Lock-in | At bank discretion | 3 years | 5 years |
Penal Interest | At bank discretion | greater than 3 and less than 5 (MTGD interest less 0.375%) | greater than 5 and less than 7 (MTGD interest less 0.25%) |
Interest denominated in | Gold | Interest paid in INR on the value of gold at the date of creation of deposit | Interest paid in INR on the value of gold at the date of creation of deposit |
Redemption of Principal and Interest denominated in | Principal and Interest paid in gold or INR at the option of the depositor at the time of creation of deposit | Principal – In gold or INR equivalent to the value of gold deposited (in INR only in case of premature redemption). Principal-will be paid on the value of gold prevailing on the maturity date of deposit. Interest in cash only. | Principal – In gold or INR equivalent to the value of gold deposited (in INR only in case of premature redemption). Principal-will be paid on the value of gold prevailing on the maturity date of deposit. Interest in cash only. |
Benefits of Gold Monetization Scheme
There are a host of benefits that the customers can get from subscribing to the Gold Monetization Scheme. Some of them are mentioned here.
- Customers can get interest on their gold deposited under the scheme that would have been otherwise lying idle, instead of only paying locker charges to keep the gold safe.
- Customers can be assured of the safety of the gold as it is securely maintained by the partner bank and is backed by the Government.
- Earnings of the customer under the scheme are exempt from any wealth tax, income tax or capital gains tax. This exemption includes the appreciation on the value of the gold as well as the interest earned from the deposit scheme.
- There is no limit to maximum gold that can be deposited under the scheme by the depositor.
- The depositors get a high amount of flexibility under the scheme.
Eligibility Criteria
The eligible partner banks under the scheme are all Scheduled Commercial Banks (excluding Regional Rural banks) as well as select private banks. The eligibility criteria for depositors under Gold Monetization Scheme are twofold. The eligible customers for the scheme are following Resident Indians.
- Individuals
- HUFs
- Trusts
- Mutual Funds/Exchange Traded Funds registered under SEBI (Mutual Fund) Regulations and Companies
- Companies
- Charitable Institutions
- Central Government
- State Government
- Any other entity owned by Central Government or State Government
- Joint Accounts
The rules for opening the gold deposit account with any partner bank are the same as any other deposit account with respect to customer identification.
Another important requirement to open a gold deposit account under the scheme is to hold a savings or current account with the partner bank. This is essential as the interest earned on the gold deposit scheme will be credited in such savings/current account of the depositor.
Therefore, if the depositor does not have an existing relationship with the partner bank, he/she has to open the savings/current account after duly adhering to the KYC norms of the bank.
Also, on part of the partner banks, they are required to inform the RBI of their decision to participate in the Scheme as soon as the policy to implement the scheme is approved by their Board. Moreover, such partner banks are also required to report to the RBI the total gold mobilized under the scheme by all its branches. Such information has to be presented in a consolidated manner on a monthly basis as per the format given in the Annex-2 of the RBI.
How to apply for the Gold Monetization Scheme?
Depositors need to prima facie hold a savings or a current account with the partner bank that they wish to deposit their gold with i.e. where they want to open their gold deposit account. After this, the depositors need to follow the steps given below to apply or enroll under the scheme.
- Depositors can go to any branch of the Scheduled Commercial Banks or at the designated branch of the private partner banks with their gold.
- Next step is to fill in the GMS Application Form.
- After this the depositors will be given the counterfoil from branch executives and will be guided to the bank’s partner Refiner’s Purity Testing centre coordinates.
- At the Refiner’s Purity Verification and testing Centre (PVC) the depositor will have to furnish the counterfoil.
- He/she will also have to tender the Gold and the same will undergo the assaying and melting process.
- Post this process, the PVC will give a deposit receipt containing the Gold quantity with purity 995.
- The depositor will have to submit the PVC’s receipt to the branch in person or through post, within 30 days.
- Branch to create gold deposit on 30th day from the date of receipt of gold at the PVC and issue a Gold deposit certificate giving gold quantity, purity, tenure, interest rate and maturity date.
FAQs on Gold Monetization Scheme
1. Is the gold received in the same form as deposited by the depositor?
No. The gold deposited will melted and assayed by the PVC and hence cannot be received by the depositor in the same form as deposited.
2. Can the depositors open a gold deposit account under joint names?
Yes. Customers are allowed to open the gold deposit account jointly.
3. Can customers receive interest in the form of gold?
No. Customers will receive interest in INR only at the maturity of the deposit (if opted to compound the interest) or annually on 31st March (in which case, it will be simple interest).
4. What is the minimum lock-in period for medium term and long term deposit?
The minimum lock in period under the scheme is given below,
- Medium Term Gold Deposit – 3 years
- Long Term Gold Deposit - 5 years
5. Who is eligible to invest in the scheme?
The scheme is open for investment to all the resident Indian entities.