Gold has always held a special place in Indian households, not just as jewelry but also as an investment. However, much of this gold remains idle in lockers, not generating any financial benefits. To make better use of this idle asset, the Government of India introduced the Gold Monetisation Scheme (GMS) on November 5, 2015. This scheme enables individuals and institutions to earn interest on their gold deposits while contributing to the country’s economy.
The Bureau of Indian Standards (BIS) plays a crucial role in the implementation of this scheme, along with the Department of Economic Affairs and the Reserve Bank of India (RBI). This article explores the scheme in detail, covering its benefits, processes, eligibility criteria, and more.
Objectives of the Gold Monetisation Scheme
The main goals of the Gold Monetisation Scheme are:
· To mobilize idle gold held by individuals and institutions in India, allowing them to benefit from their holdings instead of letting the gold sit in lockers without generating any returns.
· To reduce gold imports by making domestically available gold a viable alternative for commercial and financial purposes, thereby reducing India’s dependency on gold imports.
· To enable investors to earn interest on their gold deposits, turning an otherwise idle asset into a productive financial instrument.
· To provide liquidity to gold holdings without selling them, making it easier for individuals to access funds without losing ownership of their assets.
· To support the government’s gold reserves and financial stability by utilizing deposited gold in various ways, such as auctioning or lending to jewelers.
Benefits of the Gold Monetisation Scheme
The Gold Monetisation Scheme offers several advantages to depositors, banks, and the government:
1. Interest Earnings on Gold Deposits
Depositors can earn interest on their gold in a Gold Savings Account. The interest is calculated based on the weight of the gold and its market appreciation. Unlike keeping gold in lockers, where it does not generate any financial returns, depositing gold under this scheme ensures that it becomes a profitable asset.
2. Flexible Gold Deposits
Depositors can deposit gold in any form, including jewelry, coins, and bars. This means that individuals do not need to convert their gold into a specific format, making it convenient for depositors who own gold in various forms.
3. Secure Storage
The deposited gold is stored securely in authorized banks, reducing the risk of theft or loss. Unlike keeping gold at home or in private lockers, where security can be a concern, the scheme ensures that the gold is safeguarded under strict bank supervision.
4. Tax Exemptions
Earnings from the scheme are exempt from capital gains tax, wealth tax, and income tax. The depositor does not need to pay tax on the appreciation of gold value or the interest earned, making it a highly tax-efficient investment.
5. Redemption Flexibility
Depositors have the option to redeem their gold in either physical gold (of 995 fineness) or Indian rupees at the time of maturity. This provides the flexibility to choose between taking back gold or cashing in on its value, depending on personal financial needs.
6. Contribution to National Economy
Deposited gold is utilized by banks and the RBI to reduce dependence on gold imports, thereby strengthening India’s financial system. This helps balance the demand and supply of gold in the market while supporting the overall economy.
Comparison with Traditional Gold Investments
When compared to traditional forms of gold investments, the Gold Monetisation Scheme stands out due to its unique benefits. Below is a detailed comparison:
1. Storage and Security
· Gold Monetisation Scheme: Deposited gold is securely stored in bank vaults, eliminating concerns about theft, loss, or damage.
· Physical Gold: Needs to be stored in home lockers or bank lockers, both of which come with risks such as theft or high maintenance costs.
· Gold ETFs/Mutual Funds: Stored in digital form, making them secure but dependent on market performance.
2. Interest Earnings
· Gold Monetisation Scheme: Provides interest on gold deposits, making it a profitable investment option.
· Physical Gold: Does not generate interest, and the only potential gains come from appreciation in gold prices over time.
· Gold ETFs/Mutual Funds: Do not provide interest; returns are based solely on gold price movements and fund performance.
3. Tax Benefits
· Gold Monetisation Scheme: Depositors enjoy full tax exemption on interest earned and capital appreciation.
· Physical Gold: Buying and selling gold may attract capital gains tax, and wealth tax in certain cases.
· Gold ETFs/Mutual Funds: Subject to capital gains tax, depending on the holding period.
4. Liquidity
· Gold Monetisation Scheme: Offers high liquidity, as the deposited gold can be withdrawn in gold or cash after the tenure is complete.
· Physical Gold: Has moderate liquidity, as selling physical gold requires finding a buyer, and transactions may involve making charges and purity checks.
· Gold ETFs/Mutual Funds: Have high liquidity, as they can be easily bought or sold on stock exchanges.
5. Risk Factor
· Gold Monetisation Scheme: Low risk, as the gold is stored securely in bank vaults and earns a fixed interest.
· Physical Gold: High risk, due to market price fluctuations and risks of theft or damage.
· Gold ETFs/Mutual Funds: Moderate risk, as their value depends on gold prices and fund management performance.
6. Investment Tenure
· Gold Monetisation Scheme: Offers flexible tenure options of 1-3 years (short-term), 5-7 years (medium-term), and 12-15 years (long-term).
· Physical Gold: No fixed tenure, but returns depend on when the gold is sold in the market.
· Gold ETFs/Mutual Funds: Can be held for any duration, but long-term capital gains tax benefits apply after three years.
Conclusion
The Gold Monetisation Scheme is an excellent initiative by the Indian government to unlock the potential of idle gold while offering interest income to depositors. By securing deposits in banks, providing tax benefits, and reducing gold imports, the scheme strengthens India’s economy. However, for widespread adoption, awareness campaigns and simpler procedures are needed. If you have idle gold, this scheme is a smart way to earn passive income while keeping your gold secure.