Obstacles of Gold monetisation scheme | detailed Analysis of GMS

It is more than 6 years since when Government of India introduced the Gold monetisation scheme. In the union budget 2015-16, Modi Govt. launched this ambitious scheme with an aim to convert unused household gold into a productive asset.

The main purpose of this scheme was to use this gold in a productive manner for the benefit of the economy and to reduce further dependence on gold imports.

Let us see why this scheme is so important and what are the obstacles to the success of this scheme.

What is Gold Monetisation Scheme      

Let us first understand this scheme. As I mentioned earlier, GMS was launched in the year 2015 by the Indian Govt. As per this scheme, you can deposit your gold, which could be in any form/shape with the concerned bank, and earn interest on such a deposit.

Gold Monetisation Scheme-Benefits/Features

There are the following benefits/features under this scheme: –

• Monetise unused gold– This scheme will help to monetise your unused gold. After monetise, such unused gold will come in circulation and help in economy.
• Interest income-By availing this scheme, one can get regular interest on their unused gold.
• Secured storage space– It will keep in secure manner with bank and eliminate your worries about loss or theft.
• Saving of locker cost– To secure your gold, you need to kept in bank locker which does not generate any income but you need to pay additional charges to maintain locker.
• Tax benefits– The interest, which you earned under gold monetise scheme will be exempted from all types of taxes such as income tax, capital gain etc.
• Flexibility on maturity– As per your choice, you can select your maturity value in the form of cash or gold.     

While the introduction of the gold monetisation scheme, the two previous gold schemes namely “Gold deposit scheme” and “Gold metal loan” scheme revamped, and these are linked with the current scheme i.e. GMS. 

A.  Revamped Gold Deposit Scheme or R-GDS

R-GDS is part of GMS. This scheme is available with all leading banks in India. Under this scheme, all gold deposits are collected at the Bureau of Indian Standards (BIS) certified collection and purity testing centers (CPTC) only. The depositor will get a deposit certificate from the bank in terms of gold purity in the equivalent of 995 fineness. Bank will accept deposit for short term to long term as per given detail: –

Short term gold deposit (STGD)                     1-3 years

Medium term bank deposit (MTGD)              5-7 years

Long term bank deposit (LTGD)                      12-15 years

Particulars	Short Term	Medium Term	Long Term
Period	1-3 years	5-7 years	12-15 years
Lock-in Period	vary	3 years	5 years
Minimum Deposit	30 grams of gold	30 grams of gold	30 grams of gold
Maximum Deposit	No upper limit	No upper limit	No upper limit
Interest rate	Decide by bank	Decide by Govt of India	Decide by Govt of India
Deposit holder	Bank	Bank on behalf of Govt of India	Bank on behalf of Govt of India
Tax applicability	exempt	exempt	Exempt
Nomination facility	available	available	available
Maturity	In Rupee or in Gold	In rupee only	In rupee only
Interest payment(Annually)	In Rupee not in gold	In Rupee not in gold	In Rupee not in gold
Pre Mature redemption	In rupee only	In rupee only	In rupee only

Note: The above figures are for reference and updated till the date of publishing. Please do check with the bank for the latest update.

Eligibility criteria for R- GDS

For eligibility criteria, please check the detail below: –

All resident Indians can avail of this scheme, which includes: –

Individuals either single or jointly;

Hindu Undivided Family (HUF);

Firms- either proprietorship or partnership;

Charitable institution;

Company;

Trust including mutual fund or exchange-traded fund (ETF);

Government either State govt. or Central govt.;

B.  Revamped Gold Metal Loan or GML scheme

This scheme was originally launched in 1998 and still continues along with the current Gold monetization scheme. Govt of India took the feature from the original scheme, revamped and introduced it with GMS. Please note that a gold metal loan is different from a gold loan. 

GMS linked gold metal loan scheme-features

• The period of the GMS linked GML scheme will be equivalent to original GML scheme.
• Banks are free to decide interest rate for this scheme.
• The banks are authorized to import gold for redemption only which they mobilised under short term bank deposit.
• Designated banks are also eligible for buy gold auctioned under medium and long term gold deposit.

Gold Monetisation scheme process

• First visit the nearest authorised purity test centre.
• Get certified your gold items at purity test centre and collect purity certificate issued by bank.
• Visit nearest bank branch and submit such certificate.
• Open new bank account if you don’t have account earlier with designated bank.
• The bank account will be equivalent to your deposited gold value as certified.
• The interest rate will vary according to the scheme tenure and earned interest will credit to your bank account.

Interest rate under Gold Monetisation Scheme

1. For Short term bank deposit
2. Up to 1 year                                        = .50% pa
3. Form 1 year to 2 years                        = .55% pa
4. Form 2 year to 3 years                        = .60% pa
5. In case of Medium term gold deposit = 2.25% pa
6. In case of Medium term gold deposit = 2.50% pa

Disadvantages of Gold monetisation scheme

Apart from many advantages, there are a few disadvantages that are critical to an understanding before moving on to this scheme: –

• Maturity not in original form– This is the most important point of this scheme which you understand is the once your deposited your gold, you will not get back it in the same form as it will melt and convert it in coin or bar form.
• Lock in Period-There is lock in period clause vary as per different tenure which I explained earlier in chart form. So in case of emergency, you will not get your gold quickly and you need to follow process for pre-maturity of scheme which will consume time and levy additional charges as well.

Conclusion

There are many benefits available under this scheme and it is a welcome initiative. This scheme gives us an opportunity for the productive utilization of our idle gold resources. It will help not only us to earn interest in our idle gold but also help the country to mobilize idle gold resources for economic benefits.

But do not forget that once we deposit our gold, we will not get it in the same form as it will melt and return in form for cash or in gold coin or bar. In general, it is in our tradition that we don’t buy gold just for investment purposes but we buy gold jewelry & other items and kept it for a long period unless we face any emergency. It gives a kind of security and it is easy to sell when required. Moreover, our sentiments are also attached to it because it is a sweet memory of unforgettable moments of our life like marriage or some special occasion.

This is the reason that this scheme is still not popular among Indian households especially between semi-urban and rural areas where most of the so-called unproductive gold lying.

So, friends, this is all about critical analysis of gold monetization scheme and reason of less popular among people. What do you think about it, please do write in the comment box?

Frequently asked Questions

Q. How do we monetize our gold?

Ans. We can monetize our gold items by depositing them with an authorized purity test center & getting a certificate. On the basis of the certificate, the bank will open a gold saving amount equivalent to gold value on which we earn interest in terms of cash or in gram as the case may be.

Q. How does gold monetisation scheme work?

Ans. Bank will open a gold saving account equivalent to our deposited gold items and our gold items may be in any form or shape. The depositor will earn interest based on god weight and gold value also appreciate as per market value.

Q. Which banks offer gold Monetisation scheme?

Ans. RBI designated a few banks namely ICICI Bank, Union Bank of India, Punjab national bank, State bank of India, HDFC bank, Indian overseas bank, Bank of Baroda & yes bank to accept god deposits funder this scheme from short duration (1-3 years) to long duration (12-15 years).

Q. What is minimum investment allowed under gold monetization scheme?

Ans. Under this scheme, a minimum of 30g of gold which could be in any form or shape is allowed to invest and, further, there is no upper limit under GMS.

Q. Do we get our gold back in same form in which we deposited?

Ans. No, under this scheme, our deposited gold will be melted and converted in coin or bar shape. We will not get our original gold items but we can claim principal and interest amount in terms of a gold gram or in cash as the case may be according to the scheme.