It is said that 'all that glitters is not gold'. Yes, that is true, but even gold with all its glitters is of no use when kept idle. The Gold Monetization Scheme, as introduced by the Government of India, aims to monetize gold so that it earns interest.
Objective and features of the Gold Monetization Scheme
The basic objective of this scheme is to mobilize gold held by households and institutions in the country and put them to productive use. The scheme aims to bring down the import of gold in the long term. The scheme will provide the investor with the opportunity to earn interest on the amount of gold deposited.
FAQs on Gold Monetization Scheme
What kind of gold can be deposited under the scheme? What is the minimum and maximum quantity which can be deposited?
Gold in any form, bullion or jewellery can be deposited. However jewellery with embedded stones are not be accepted. The minimum amount of gold which will be accepted as a deposit is 30 grams of 995 fineness. There is no upper limit for deposition.
What will be the tenure of deposit?
The tenure for deposit has been distributed into three term plans which are as follows:
- Short term: 1 to 3 years
- Medium term: 5 to 7 years
- Long term: 12 to 15 years
The investor will be allowed to break the deposit during the lock-in period by paying a penalty for premature withdrawal.
What will be the interest rate payable on the deposit?
Initially it was proposed that the amount of interest rate payable for deposits made for the short-term period would be decided by banks and would be denominated in grams of gold.
For the medium and long-term deposits, the rate of interest (and fees to be paid to the bank for their services) will be decided by the government, in consultation with the RBI from time to time.
The interest rate for the medium and long-term deposits will be denominated and payable in rupees, based on the value of gold deposited. As of now the rate of interest is 2.25 per cent on the current price of gold for the short term and 2.5 percent for the medium and long term deposits. The interest is taxable.
Who is eligible to deposit under the gold monetization scheme? Is joint deposit allowed?
Deposits can be made by residents of India, HUFs', mutual funds and exchange trading funds registered under SEBI. Yes, joint deposits are allowed with a minimum of two holders with no cap on the maximum number.
Where can the deposit be made?
The deposit of gold can be made at any scheduled bank as per the list of scheduled banks under the Reserve Bank of India.
How will the authenticity of the gold be verified?
A total of 331 Assaying and Hallmarking Centers', spread across various parts of the country, which meet criteria as specified by Bureau of Indian Standards (BIS) have been enlisted by the government. These centers have been entrusted with the task of Collection and testing for purity of gold, for the purpose of this scheme.
How to open an account for gold monetization?
Individuals willing to open a gold deposit account have to do so with a scheduled bank as listed under RBI guidelines. The nature of the account would be similar to normal zero balance saving bank accounts.
The documents which are required to open the account are also the same as those required for any savings bank account opening viz. customer (KYC) form along with valid address proof, ID proof and passport size photograph.
The following additional steps are to be followed for this scheme:
- Once verification of details is completed, depositors need to approach the government authorized Collection and Purity Testing Centres (CPTC). The bank will provide this list to the depositor.
- CPTC will carry out a detailed assessment of the gold and once the verification is successfully done they will issue a receipt for the gold quantity which is signed by the authorized signatories of their centre.
- Depositor will then have to submit the receipt in the bank who will in turn issue a final deposit certificate to the depositor with all relevant information including the tenure for which the deposit is made.
As many investors think, it is NOT a scheme in which they collect your jewels and pay interest for the period and return the same jewels that you have deposited. If you deposit jewels, that will be converted and transformed into equivalent coins or bars and used by the bank. When you withdraw, you will get the equivalent money or the equivalent amount of gold coins or bars.
The author is Ramalingam K, CFP CM is the Chief Financial Planner at holisticinvestment.in, a leading Financial Planning and Wealth Management company