Gold Monetization Scheme Investment – Meaning, Working of Scheme, Tenure, Perks & more

Know everything about Gold Monetization Scheme Investment here.

Gold belongs to the commodity asset class. Traders invest in gold for various purposes because of the features the precious metal provides in terms of investment.

Likewise, some schemes initiate the investment process.


Gold Monetization Scheme

The Government of India introduced the Gold Monetization Scheme in 2015-16. It is to mobilize the idle gold lying in the households for productive use.

Gold Monetization Scheme InvestmentTypically, gold monetization means creating a gold savings account. It will earn interest for the gold that investors deposit in it.

The rate of interest depends on several factors considering the period of investment. It can range up to short-term, medium-term, and long-term periods.

In this investment scheme, the gold is available to deposit in any physical form, including jewelry, bars, and coins.

While the time factor exists to determine the interest on deposited gold, other criteria of the value of the metal and weight of gold also contribute to the same.


Working of Gold Monetization Schemes

Lets us know how Gold Monetization Scheme works –

Check Validity

Determining the real quality of gold is essential to understand that it is pure. It is possible by checking the hallmark on the gold.

It estimates that the gold is real and pure. Buyers can check the quality and purity in different hallmark centers that provide the certificate on purity and gold content.

Gold Savings Account

Upon successful consent from the hallmark centers, the investors can use the purity certificate to open a gold savings account.

The procedure also includes providing KYC documents to ensure the validity of the authoring entity. Post opening the gold savings account, investors can deposit that gold.

The bank will then offer the investor to pay annual interest.  Despite this, the investor has to choose the tenure of investment and redemption option (cash/gold) while depositing.

Therefore, investors must decide the period for gold investment wisely.

Collect Interest on Deposited Gold

The tenure for gold investment is already defined by the investor while opening the savings account.

Therefore, on completion of the monetization scheme period, the bank provides with 2% interest calculated on the weight of deposited gold.

Considering that an investor deposited 10g gold at the end of the first year, they can collect 12g of gold. The Gold Monetization Scheme Interest Rate depends on the investment tenure also.

For short term tenure like a one-year investment, 0.50% per annum interest applies to the deposit. For one to two years of investment, 0.55% per annum interest is applicable.

Now, for two to three years, 0.60% per annum interest persists. The 2-2.5% interest mentioned above applies to the medium or long-term investments.

Investment Criteria

There are some restrictions related to the tenure of investment and weight or value of gold.

The minimum lock-in period of gold investment is one year, and the minimum gold value an investor can deposit should be 30g for opening the savings account.


Know in Detail about Various Types of Gold Investment here

Digital Gold InvestmentGold Coins Investment
Gold Bars InvestmentGold ETF Investment
Gold Jewelry InvestmentGold Funds Investment
Sovereign Gold Bond Investment

Why Choose Gold Monetization Investment Scheme

The purpose of the GMS is to uplift the value of gold in fixed or term investment. Along with it, it provides other benefits to the investors.

Advantages

  • Investors earn interest on gold that is inside the locker. Therefore, investors can gain profit from investing their broken or outdated gold jewelry in the monetization scheme.
  • If the investors choose to deposit in other physical forms of gold like coins and bars, it is capable of earning interest apart from appreciation value.
  • Unlike security threats at home, gold is secure in banks. It remains in a locker under 24/7 security.
  • On completion of tenure, investors have a lease of choosing the type of redemption. That is either in the form of cash or as it is with interest.
  • Investing in Gold Monetization schemes provide an exemption from the capital gains tax, wealth tax, and income tax. The monetization scheme does not impose any tax on the value of gold deposited. It is the same on the interest investors make from it.

Disadvantages

  • The tenure is uncompromised. It is unchangeable and needs completion for getting hold of the investment. The choice of redemption before tenure completion does not exist, and therefore in times of crisis, investors cannot benefit themselves from their gold.
  • People prefer gold jewelry instead of coins. Therefore when the returns include coins, they do not appreciate putting extra making charges on those gold coins or bars to convert it into jewelry.
  • To check the purity of gold jewelry, they are melted by hallmark centers to ensure authenticity. The value of jewelry is not the same as melted gold for people. Therefore, it is another reason that discourages investment in gold monetization schemes.

Find more details about Gold Investment here

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Tenure Completion

On completion of the tenure, the investors have the option of opting for their gold deposit in rupees/cash or physical gold. But, they have to specify the format of redemption while investing itself.

While creating gold savings account for a gold monetization scheme, investors should decide the type of redemption after tenure completion.


Why Invest in Gold?

According to the forecasts and prediction, the prices of gold seem to keep rising in favor of the investors. It indicates that they are safe from facing loss in the future.

The ability of gold to remain stable during inflation and provide hedge encourages gold investment.

Moreover, instead of keeping the gold idle, the investment provides interest and also keeps the gold secure. It is also safe from taxes.

The investor also incurs carrying costs on the gold deposit and earns regular interest.


Who Regulates the Gold Monetization Scheme?

The Central Government allows banks to provide the facilities of the gold monetization scheme. It is also responsible for deciding the interest rate on gold.

The deposits likewise need to be made at a government-certified center called Collection and Purity Testing Center.

Recently, the Reserve Bank of India directed the commercial banks that all deposits under the Gold Monetization Scheme be made at the CPTC.

Some designated branches are allowed to accept deposits of gold, which are treated as fixed or term deposits.

Using this government scheme, investors can gain up to 2.5% interest on the gold deposit. They also enjoy capital appreciation and save storage costs to keep their gold safe.

Along with it, they also save tax. There is only a minimum or lower limit of deposit mentioned in the investment scheme.

That is, 30g and, the minimum lock-in limit is for one year. Otherwise, there is no upper limit as such. A maximum amount of investment is not possible here.


Conclusion – Gold Monetization Scheme Investment

Ultimately, the gold is secure and stored with returns, and there is a flexibility of investment in terms of coins, bars, and jewelry.

The increasing import and hike in prices motivate gold investment and acts as a haven for future economic safety terms.

During the process, it tests the gold for purity. If in case it is not satisfactory, the identification allows tracing back the fraud and turns down such vendors.

So, it has also benefited in terms of authenticity and restricts the production and sale of false gold jewelry.

Gold Monetization Schemes reduce the government’s reliance on gold imports. It supplements the RBI’s gold reserves.

It helps the government in reducing the cost of borrowing. In the long run, it expects to decrease India’s dependency on gold imports.


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