Raising The Curtains On The Gold Monetization Scheme

Last Updated: 14 Oct 2024

India has been a pioneer in gold consumption since time immemorial. But due to the death of domestic gold, it has been reliant on gold imports to suit its requirements. As a result, there have been large current account deficits.

To reduce the import of gold into the country, the government implemented different policies, recalling the gold loans offered to banks. 2015 witnessed the time when the Indian Government unveiled the GMS or Gold Monetization Scheme (GMS). So, is GMS changing the Gold Loan Game?

Introducing You to the Concept of GMS or Gold Monetization Scheme: Understanding the Key Objectives

The Government of India launched the GMS or Gold Monetization Scheme to unlock gold’s real value. According to the guidelines, the scheme’s minimum deposit requirement is 30 gms.

With an objective to tap gold within the nation, Indian Government launched three schemes:

• Gold Monetization Scheme
• Sovereign Bond Scheme
• Coin & Bullion Scheme

The key objective of the GMS or Gold Monetisation Scheme is to mobilize gold owned by institutions and households in the country to put gold into productive use. Reducing the country’s reliance on gold imports reduces the recent account deficit to suit the nation’s domestic demand. Here’s presenting the key objectives:

• Mobilize gold held by the nation’s numerous households
• Reduces gold imports to supply the domestic demand
• Banks to offer gold loans to assist the gold and jewelry sector and improve it accordingly
• Offers depositors certificates that state the purity and quantity and purity of gold

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Outlining the Most Common Features of the Gold Monetization Scheme

The following points outline the key features of GMS:

The scheme offers zero maximum investment limit for the following deposits:

• Short-term: 1 to 3 years
• Medium-term: 5-7 years
• Long-term government: 12-15 years

The scheme outlines that a gold coin, bar, or any ornament that weighs more than or equal to 30 grammes of raw gold will be deposited. It permits the withdrawal after the requisite lock-in period. For such withdrawals, it imposes a certain amount of fees.

GMS provides a 2.5% interest rate, which tends to be higher than the previous gold investments. According to the scheme, redeeming short-term deposits for dollars or gold at the rate is possible.

Outlining the Steps Associated with the Gold Monetization Process

Gold monetization can be performed in two steps. While the first step includes the gold’s purity verification, the second and last step requires you to establish a gold savings account with your preferred bank. Here’s more on this front:

Step 1: Verifying the Purity of Gold

The collected gold is first sent to the government-certified test centers, which are better referred to as Hallmarking Centers. The professionals there conduct the Preliminary XRF machine test to find the pure gold amount. After getting the results, it will be discussed with you.

If you approve, you need to fill in the KYC form and consent to melting the metal. If you disagree, it will be given back to you. The professional will melt the jewelry in your presence. If you disagree with the results, you may take the gold back in the form of bars after paying the required fee. If you wish to deposit it, the bank will pay the fees, and you will get the certificate issued by the center.

Step 2: Opening the Gold Savings Account

After you show the certificate to the bank, you can open the Gold Savings Account. The quantity of gold gets credited into this account.

What Are the Top Benefits of GMS?

The Gold Monetisation Scheme offers the following benefits:

• The Gold Monetisation replaced the Gold Deposit Scheme. This programme allows gold depositors to get 2.25% of interest every year on short-term deposits (1 to 3 years)
• Depositors can get a 2.5% interest rate for long-term and medium deposits.
• The profits of the gold monetization plan are exempt from the capital gains tax. Income and wealth taxes do not apply to capital gains.
• Large families get an opportunity to profit from outdated jewelry. The method can be used by different sections of people, including jewelers, businesses, gold hoarders, and trusts. They can get a certain amount of profit from it.

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Summing up

The prime reasons why individuals plan to purchase gold are capital gains, liquidity, and security. It is reportedly noted that urban households spend more money on gold than rural families. So, it is imperative to spread awareness of this scheme. If the urban familiar are unaware of this programme, chances are high that the rural population would also not get familiar with it.