Gold Monetisation Scheme - Make the Idle Gold an Earning Member

As working professionals, all of us come across some contradiction or should I say some mis-matches between our personal and professional lives. As a Wealth Manager I come across so many clients who are always bullish on Gold irrespective of its price and global scenario , while as an investor myself I have never considered Gold as an asset class worth investing.  Anyways lets not digress from the topic of this article i.e. Gold Monetisation Scheme recently launched by the government.

Gold has proved to be an all weather love for Indians. Thanks to the fact that it forms a part in many religious rituals, it has attained a sort of cult following among Indians. Hence all the hype surrounding the Gold Schemes of the govt. Let’s have a look at Gold Monetisation Scheme recently launched by the government.

Objective -

To mobilise gold held by domestic households, individuals and institutes for jewellery industry with banks working as intermediary.

Who can invest -

Resident Indians (Individuals, HUF, Trusts including Mutual Funds/Exchange Traded Funds)

How does it work -

• Individuals/Institutes deposit gold lying with them to designated banks and agency
• Banks issue deposit certificate against the deposited gold.
• Depositor gets 2.5% annual interest on the value of the gold deposited.
• Banks sell the gold mobilised to the jewellery and other industries that use gold as an input.

Documents and Formalities -

Same as KYC norms applicable for banks fixed deposit i.e ID proof, address proof and PAN or Form 60 alongwith photograph.

Tenure of the scheme -

Banks can accept gold for the tenure of 1-3 years, 5-7 years or 12-15 years.

Liquidity -

Individual banks will decide the conditions for pre-mature withdrawal (i.e withdrawal before the end of the tenure for which gold was deposited initially )

Condition of Gold -

• 995 Finenes gold.
• Minimum 30 gms, no maximum limit  
• In the form of bars, coins and jewellery
• All the gold collected will be converted to tradable form of bars

Interest Payout -

Interest at an annual rate of 2.5% of the value of deposited gold will be paid at pro-rata basis.

Pros -

• An assured and regular interest on an asset that gives returns in the form of capital appreciation (i.e appreciation in its value) only
• Better Physical security of the gold as it is in the possession of the banks

Cons -

• Gold will be converted in the form of bars , so in case of jewellery, loss of making charges
• Liquidity suffer as gold is deposited to banks and banks may have a minimum lock in period (will vary from bank to bank as RBI has mandated banks to frame their own rules)

In total this is a good scheme for those investors who already have exposure to gold as an investment asset in the form of bars, coins etc, with the probable downside being the loss of liquidity only. For those investors who want to earn interest on their regular use gold i.e jewellery etc. , it can be a good option only in situations when jewellery no longer has utility for ornamental purpose.

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