All About the Gold Monetization Scheme

When the finance minister Arun Jaitley declared the union budget for 2015-16, he said that there was about 20,000 tonnes of unutilized gold in India that wasn’t traded or monetized. This is why the Gold Monetization Scheme (GMS) was launched.

What is GMS? How does it work?

For a long time, an individual who owned any decent amount of gold had only two options – they could either keep it in their house where it was unsafe or put it in a bank’s locker and pay a small annual fee. The GMS was introduced as a much better alternative to these two options as it allows a person to not only enjoy the benefit of their gold’s safety but also make some money on it in the form of interest.

A person can apply for the GMS by approaching a bank or any other approved government agency with their gold. The bank/agency weighs the gold and calculates its purity value as per which it’s actual value is determined. The customer is also required to complete a standard KYC (Know Your Customer) process. This gold is lent to the jewelers on which the banks earn an interest. A portion of this interest is then paid to the customer. Thus, the customer and the bank both make some profit from the gold.

What are some of the salient features of GMS?

• A person can deposit gold in any form under GMS, including gold coins, bars, and even jewelry. However, if a jewelry has gemstones embedded in it, then it can’t be deposited.
• GMS is available in three formats – short-term (1 to 3 years), medium term (5 to 7 years), and long-term (12 to 15 years).
• The interest rates offered for the GMS depend on the maturity period. For instance, SBI offers an interest rate of 0.50%, 0.55%, and 0.60% for 1 year, 2 years, and 3 years, respectively. On the other hand, medium-term and long-term deposits can fetch interest as much as 2.25% to 2.5%.
• Income generated from GMS is fully tax deductible.

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