The Government of India announced the Gold Monetization Scheme (GMS) in September 2015. The government launched the gold monetization scheme to solve the problem of gold being locked up inside bank lockers and enable the gold stock to make some money. Individuals and organizations can capitalize on their gold reserves through the GMS. 

The gold monetization scheme comprises the previous ‘Gold Deposit Scheme’ and the ‘Gold Metal Loan’ scheme, revamped and linked together in the GMS. The objective of the GMS is to mobilize the gold held by institutions or households and facilitate its use for productive purposes, which in turn reduces the country’s reliance on the import of gold in the long run.

Investing in GMS is a good option for individuals and institutions as it keeps the gold safe. The GMS works like a savings bank account and saves the fees paid to bank lockers where the gold is kept for safety. Under the GMS, an individual/institution has the option to deposit gold in a gold savings account and earn interest on it. However, it must be noted that an individual cannot deposit gold jewelry having other metals or stones embedded in it.

Gold Monetisation Scheme Benefits

The benefits of the gold monetization scheme are:

  • Mobilize idle gold: The scheme will help in mobilizing gold that has been lying idle in the confined spaces of households, trusts, and other institutions in India. The movement of gold in the national market will further benefit the Indian gems and jewelry sector which is a major contributor to India’s exports.
  • Earn interest: Gold lying in your bank lockers or household does not earn you anything. In fact, when you store gold in a bank locker, it costs you bank locker charges to keep it safe. The gold monetization scheme will help you earn interest on your gold deposits, which will add to your savings.
  • Avail secured storage: Bank lockers are hard to get. Opening a gold deposit account with a bank will eliminate your tension regarding gold storage. Once you deposit your gold possessions, your bank will keep it secured and safe.
  • Enjoy tax benefit: The earnings on the gold monetization scheme are exempted from the capital gains tax, wealth tax, and income tax. Even when the value of your gold deposit appreciates, capital gains tax will not be levied on it or on the interest you earn from it.
  • Get flexibility on redemption: The gold depositor has the option to take either cash or gold on redemption. However, the redemption preference has to be mentioned at the time of deposit.
  • Reduce the government’s reliance on gold imports: The mobilized gold will also supplement the RBI’s (Reserve Bank of India) gold reserves. It will also help the government in reducing the Government’s cost of borrowing. In the long run, it is also expected to decrease India’s dependency on gold imports.

Features of Gold Monetisation Scheme

  • The eligible persons can deposit gold in a bank savings account and receive interest on the gold deposited under the gold monetization scheme. 
  • The tenure of the gold deposits can be short, medium, and long under the GMS. The tenures are as follows:
    • Short tenure is when gold is invested for 1-3 years.
    • Medium tenure is when gold is invested for 5-7 years.
    • Long tenure is when gold is invested for 12-15 years.
  • The GMS interest rate for the deposit of gold is dependent on the investment tenure, which is as follows:
    • For short tenure (1 year) – 0.50% p.a
    • For short tenure (1-2 years) – 0.55% p.a
    • For short tenure (2-3 years) – 0.60% p.a
    • For medium tenure – 2.25% p.a.
    • For long tenure – 2.50% p.a. 
  • The interest earned under the GMS is paid either in gold or in money equivalent.
  • The GMS provides the option for repayment of the principal either in gold or cash equivalent to the value of gold on the date of deposit/investment maturity. However, the repayment of the deposited gold jewelry can be in a different form at the time of maturities, such as coin or bullion. The gold may not be given in the same form as deposited. 

Eligibility for Gold Monetisation Scheme

The Reserve Bank of India has stated the eligibility criteria for the gold monetization scheme. The following are eligible to deposit gold in the GMS: 

  • Individuals. 
  • HUFs. 
  • Proprietorship. 
  • Partnership firms. 
  • Companies. 
  • Trusts, including exchange-traded funds and mutual funds registered under SEBI (Mutual Funds) Regulations. 
  • Charitable institutions. 
  • The central government, state governments, or any other entity owned by the central or state government. 

The RBI has also stated that two or more eligible owners can make joint deposits under the gold monetization scheme. In the case of joint depositors, the bank will credit the interest to the joint deposit accounts opened together by the investors.