Gold Deposit Scheme was first announced by Arun Jaitely in his Budget 2015 speech. The broad idea is to encourage everyone to deposit there idle gold in banks, which in turn can be loaned to jewelers or used for other useful purpose.
This would be win-win for all the participants as the depositor would be paid interest, jewelers can directly get gold loaned from banks and India can save a lot of foreign reserves it spends in importing gold.
As of now, the Gold Deposit Scheme has been approved by cabinet meeting chaired by Prime Minister Narendra Modi. It would still be 1-2 months when the final scheme is unveiled.
How Gold Deposit Scheme Works?
Depositors would first need to take their Gold to the approved collection centers, which would verify the purity and take deposit of the gold.
After the consent of the customer, the collection centers would send the gold to refineries to melt it.
Collection Centers would issue certificate for the gold deposited which would be taken to bank to open Gold Savings Account, which would be denominated in grams of gold.
The refineries can store the gold on behalf of banks for mutually decided fee. There would be no charge to customers for this.
Also read: Sovereign Gold Bond Scheme
Jewelers can open Gold Metal Loan Account, denominated in grams of gold with the bank and borrow physical gold.
The bank would pay interest to depositors depending on duration of deposit while the Jewelers would pay interest to the bank for borrowing.
Salient Features – Gold Deposit Scheme
Below are some Salient Features of the Scheme:
- The minimum amount of gold that can be deposited is 30 grams
- As of now there are 331 centers where the depositors can get their gold tested and deposited
- All forms of gold including jewellery, coins and bars can be deposited
- The scheme would be available for short (1 – 3 Years), medium (5 – 7 years) and long (12 – 15 years) term with different interest rates
- The above lock-in period can be broken with penalty
- Banks would fix the interest rate for short term deposits while interest on medium and long term deposit would be fixed by Government like in case of PPF etc.
- The interest rate would be payable in rupees depending on deposited gold value.
- The redemption on short term deposits can be in the form of cash or gold. Fractional gold value to be paid in cash only.
- The redemption on long and medium term deposits would be in form of cash only.
- The interest paid would be exempted from tax
- The deposited gold can be used anyway fit by bank like auctioning, as RBI Gold reserves etc
- Jewelers can open Gold Metal Loan Account, denominated in grams of gold
- The gold deposited for short term can be loaned to Jewelers in physical form
Earlier Version: Gold Monetisation Scheme 1999
This is not the first attempt of Gold Monetization. It was also launched in 1999 but the minimum deposit was 500 grams and the interest rate was in the range of 0.75-1%. The scheme did not take off due to the low interest rate on offer.
Also Read: Five Signs of Purity for Gold Jewelry
There are still a lot of details awaited and the final decision to invest or not would be based on that. But as of today I see the following issues:
- Gold has always been a hidden asset and has been passed from generation to generation. Most people with inherited gold may not be comfortable with declaring the same for the fear of income tax.
- Some tax experts are of the opinion that depositing gold in the gold monetization scheme might lead to capital gains tax, as it may be considered as gold sold. I am hopeful Government would give some clarification on the same.
- Most of retail depositors might not be comfortable with the melting of gold. Even if the jewelry is in the locker, people are emotionally attached to the same. Also melting means loss of making charges and VAT paid.
Also Read: Gold Price in India – 40 Years History
The success of the scheme depends on the interest rates offered. Until it’s aggressive, small depositors would stay away.
Would you invest in this Gold Deposit Scheme?
9 thoughts on “Gold Deposit Scheme”
Thks for your kind advice, Sir.
I have 2 querries relating to Gold Deposit Scheme
Firstly, where I would be getting the list of Centres for this scheme
And further, they have mentioned that the redemption for medium and long term would be in cash only…. I want to know whether the redemption would be as per the privailing rate at that point of time OR as per the current valuation of the gold.
Hope you can help to sort out my querries.
Jayesh – The scheme is not launched formally so we still need to wait for clarity. We still have to wait for center’s list.
As redemption are concerned it would be based on the gold prices prevailing at the time of redemption because the account would be denominated in gold in grams, so what you would be encashing is gold.
Amit when you think the formal announcement of the scheme will take place? Also, I found this link from SBI about the Gold Deposit Scheme https://www.sbi.co.in/portal/web/personal-banking/gold-deposit-scheme-gds , I guess this is the old version?
Thank you in advance.
I think it’s going to take atleast a month for formal launch of Gold Schemes. Yes the above link is for the old Gold Deposit Scheme version.
This is a very good piece of information you have shared on Gold Deposit Scheme. I have been wondering how banks intend to make money and now I understand.
Correct me if I am wrong, but banks will take gold from us and give it either to RBI or lend it to people and pocket the interest margin (gold lending rates – gold deposit rates). Hope my understanding is correct.
Thanks for a very informative post.
Yes Subhodeep that’s my understanding too about the Gold Deposit Scheme. Let’s wait for the formal announcement of the scheme and then we can dig deeper!