As proposed by Hon’ble Finance Minister Mr Arun jaitley in his Budget speech 2015, the Draft guidelines of Gold Monetisation scheme has been announced. As it is in draft stage for now, so stakeholders have been advised to submit their opinions and comments before June 2’15 to give it a final shape. But on the face of it, it looks interesting, especially for physical gold Investors.
The purpose behind this gold monetization scheme is to mobilize the physical gold held by households and Institutions of the country, which can be provided as raw material to jewelers under loan scheme. This structure will reduce the reliance on gold imports, which in turn helps in improving the current account deficit of the country.
On personal finance front it provides an opportunity to earn interest on the idle physical gold lying in lockers.
How the Gold Monetization scheme will work?
In simple terms, it works like normal banking transactions. You hand over the gold to banks, which in turn lend gold to jewelers. You will earn interest on the gold deposits and Jewellers will pay interest on gold loans. Banks will manage the complete show under regulatory supervision and earns in the structure.
Besides lending to jewelers, banks may get permission to use these gold deposits as part of the CRR/SLR requirements. Banks may sell the gold to generate foreign currency which may be used in foreign exchange lending. Banks may also convert the gold deposits into coins for onwards selling to customers.
Such scheme was also announced lately in 1999, as gold deposit scheme 1999, but that time it could not gain that popularity. In 2013 also RBI announced some guidelines on this structure, but till now only SBI has such kind of “Gold Deposit scheme” in its product kitty.
What would the process in Gold monetization scheme?
This scheme requires a vast infrastructure set up, so to start with it may be available in few locations only. The process will work like as below:
Customer will visit the designated Hallmark centers which are Bureau of Indian Standards (BIS) certified. These centers will act as Purity Testing centers for this scheme. These centers will first conduct one XRF machine test and tell customer approximate amount of pure gold in the jewellery or coin or whatever it is. If customer agrees to proceed then he will have to fill up Bank /KYC form and give consent for melting the gold.
After receiving customers consent for melting the gold, ornaments will go through a Fire assay test after cleaning off the dirt, studs, meena etc. When the results of fire assay are told to the customer as to the net quantity of pure gold, he has option to take back the melted gold by paying the nominal fee to the center or he may agree to deposit the gold with bank. If he agrees to deposit the gold then he’ll be issued one certificate certifying the amount and purity of gold deposited.
Customer will take this certificate to the bank and bank will open a “Gold Deposit account” in his name by crediting the quantity of gold in customer’s account.
Source: Draft guidelines- gold monetisation scheme
Other Important Features of Gold Monetization scheme
– Minimum quantity of gold to be deposited should be atleast 30gm
– Rate of interest is left at the discretion of Banks. Both principal and interest will be valued in gold only. For e.g. if there’s 100gm of gold in the account and interest rate is 1%, then on maturity he gets 101 gram of gold. As in the existing scheme of SBI the rate is in the range of 0.75%-1% per year, so you may expect almost the same range in the new structure also.
– Tenure of deposit will be one year and in multiples of one year. There will be provision to take premature withdrawal too with some conditions.
– Customer may redeem the deposit in cash or in gold. But this discretion has to be exercised at the time of opening the account.
– The gold deposits in these schemes will be exempted from capital gain tax or Income tax. Unlike the sale of physical gold where the tax rate is as per income slab before 3 years and 20% after indexation after 3 years, in gold monetization scheme there would be no taxation.
Download complete draft guidelines – gold monetization scheme
Gold monetization scheme- Should you go for it?
First of all this is still in draft stage, so It is difficult to say if the structure as announced will remain same or get changed. But yes if the structure remains the same, then this scheme does look attractive to me.
From taxation point of view it is good. If someone has to sell the gold in near term then by using this scheme structure one can make the transaction completely tax free.
The Gold Monetization scheme looks more suitable to the people having physical gold as investments in the shape of coins or bars. By depositing it with bank in gold deposit account one can earn on these gold holdings and also take back the gold in same form as and when required.
I am not sure if jewellery to be deposited in this account due to 2 reasons- one you have already paid so much of making charges on that, second it is not 100% gold so impurities will be deducted out of the value and if on maturity the purpose is to remake jewellery only, then you will again bear the making charges.
Conclusion:
All in all, this Gold Monetization scheme is good for the country. India is world’s top gold consumer. By mobilizing the household and institutional gold, we can reduce the import bill and save our foreign currency reserves which will reduce our current account deficit. Many temples and Institutions have lots of gold lying idle with them; if this scheme gains success then it is good for all of us.
How do you find Gold monetization scheme? Do share your views in comments section below.
Manikaran Singal is the founder and Chief financial planner at Good Moneying Financial Solutions. He is a CERTIFIED FINANCIAL PLANNER CM and SEBI registered Investment adviser (Regd no. INA 100001620). He’s having 20+ years of experience in financial services space.
Hi Mr. Singal,
One thing I didn’t get, when one have to wait till the jewellery is converted into pure gold and then get a certificate, why can’t we simply visit a gold shop and sell the jewellery and get the cash and the put that amount in any investment scheme?
What is the difference in this two?
I think biggest challenge, here will be to convince people to take out the gold in physical format. That depend completely on individuals. DO you really think people will consider this scheme in the name of tax saving?
Santanu, as far as jewellery is concerned, even i am apprehensive. Its not about time one spend at the testing center but the cost that is attached to the making charges and impurities present in the jewellery. One may not get the value which one had spent.
But this scheme does make sense to those who buy and hold gold in physical form like coins, Bar etc. Every year people buy gold on dhanteeras, akshay tritya, many times banks sell gold to their customers, so rather than keeping that gold in locker, one can make use of this scheme. In this case they might not need to bear the fire assay and other costs as gold is already certified and in purest form. This way they can earn some interest on gold too and convert back into coin or bar as and when required.
Gold also has emotional value, especially when bought in the form of Jewellery which is for personal use. So converting jewellery may find some challenges but otherwise i think people should go for this scheme.
and its not about tax saving at all, it is just that the interest they get will be tax free.
nice Blog and helpful.This scheme is good for country.but no any temple is ready for offering gold to government.
Lets see, how Modi government tries to make it a success.
Hello,
I continuous follower of your website. There is lot of helpful info provided by you.
Thank you.
One query i have is,
If we have 50 gms of gold and deposit in bank what would Bank get with that if i am not willing to melt and lend it for Jewellers. How will Bank earn money? Will they still pay interest?
If you are not willing to melt then in any case you cannot take advantage of this scheme. You have to get the jewellery melted then only can deposit the quantity and purity certificate from the Purity testifying centers.
banks earning will be the difference in the interest it charges from the jewellers and pay to the depositors.
Thank you for sharing gold monetization scheme
Really appreciate
Thanks for reading. 🙂
Hello Sir,
If Mr. A deposited gold, the FMV of which on that date was Rs. 100 (the cost being Rs. 10), will get the Deposit Certificate of Rs, 100. Later, he redeemed that Deposit Certificate for, say, Rs. 500, the CG which is not chargeable to tax is Rs. 400 (500-100). But what about that Rs. 90 (100-10)? Will that Rs. 90 also be exempt?