Wednesday, 20 May 2015

Gold Monetization scheme - Great Benefits to the People, Banks and Nation

Posted by MyInvestmentsPub
The central government announced a draft version of Gold Monetization scheme on Tuesday. This scheme encourages to channelize the thousands of tonnes of un-productive Gold into the Market. The scheme would fundamentally change the perception of consumers towards gold and make them view it like any other financial savings instrument. Central Government would finalize the draft guidelines and bring the final Gold Monetization scheme in next 1 or 2 months. We will discuss the details about this new Gold Monetization scheme in this article..

Why Gold Monetization scheme?

India is one of the top country importing Gold in the world. Every year approximately 800 - 1000 tonnes of Gold being imported. To import this Gold, India has to spend most of Forex deposits causing severe effect on Rupee value in the Market. The interesting point here is most of these Gold are sitting idle and un-productive. According to the current Market prices, the value of this un-productive Gold is around 60 Lakh crores. To decrease the imports of Gold and to channelize the gold sitting idle into the Market, Finance Minister Arun Jailtey had announced Gold Monetize Scheme (GMS) in budget 2015. The Draft Guidelines of the Scheme is released today by Government.

Draft Guidelines of Gold Monetization Scheme:

  1. Gold Monetization Scheme is proposed to be tax-free i.e. no capital gains tax, wealth tax or income tax will be levied on the interest as well as on the appreciation in the value of deposited gold.
  2. The rate of interest payable on the metal deposited is proposed to be decided by the banks and will be credited into the account after 30/60 days of opening of account.
  3. The Minimum Quantity of gold that individuals or institutions can deposit is proposed to be pegged at 30 gms in the form of jewelry or bullion. The deposited gold may be loaned to the Jewelers for manufacturing of new jewelry and other items.
  4. Holder of the Gold is required to get the gold tested for the purity at any of the 350 Hallmarking Centers that are Bureau of Indian Standards (BIS) certified at a nominal fee. These testing centers will provide estimated value of gold. If the holder agrees to the value, he will be required to fill-up a Bank/KYC form and give his consent for melting & deposit the gold. This process would take approx. 45 minutes.
  5. On the basis of the certificate, banks will open “Gold Savings Account” and credit the quantity of gold deposited at the purity testing center. Gems or stones present in the jewelry will be handed-over to the customer.
  6. The interest on the deposited gold will also be given in the form of value of gold. For instance the account balance of the individual who deposited 100 gms of gold at an interest rate of 1% p.a. would be 101 gms after 1 year.
  7. Option of redeeming the deposited gold in either cash or gold will have to exercised at the time of opening the account. This means if opted for gold, the physical gold in form of bullion will be given at the time of maturity and if opted for cash, the amount equivalent to the prevailing market value of gold at the time of maturity will be given to the depositor.
  8. The minimum tenure of the deposit is proposed to be fixed at 1 year and thereafter in the multiple of 1 year. Further, breaking of the deposit will be allowed similar to fixed deposits scheme.
  9. State Bank of India is already running SBI Gold Monetization Scheme since 1999 but did not get good response due to the requirement to deposit minimum 500 gms of gold and the meager interest rate of .75% p.a. 1% p.a.
  10. Due to the need of large infrastructure facility, Gold Monetization Scheme will initially be launched at few locations.

How Gold Monetization scheme is benefit to the Persons / Firms:

  1. The first benefit is your Gold reserves sitting idle would be earning interest.
  2. There will be no tax on Interest earned on your Gold deposits.
  3. More security on your Gold stocks
  4. Can also convert into currency on maturity based on the Market value.
  5. Short Lock-in period.The scheme lock-in period is just 1 year

How Gold Monetization scheme is benefit to the Banks:

  1. Banks might be allowed to use these deposits to meet their requirements for statutory liquidity ratio (SLR) and cash reserve ratio (CRR). 
  2. Banks will be permitted to sell the gold to generate forex reserves.
  3. Banks can also trade on commodity exchanges or sell the gold to the jewelers.

How Gold Monetization scheme is benefit to the Nation:

  1. Gold Monetization scheme will reduce the dependence on imported gold and there by stop leakages to the forex reserves.
  2. By circulating the Gold stocks in the economy, Country would save billions of dollars on gold imports annually. 
  3. This scheme would change the mindsets of people towards gold and start looking like any other financial savings product which would reduce the stocking of Gold into the lockers. This will decrease India's current Account Deficit (CAD) drastically.


Gold Monetization scheme is undoubtedly a very good investment scheme which is not only benefit to the People but also to the Banks and finally to the Nation. You can view full details about the draft version of Gold Monetization Scheme from


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