Gold Monetisation Scheme is a scheme that allows depositors of gold to earn interest in their

metal accounts and the jewelrs to obtain loans in their metal accounts. Replacing both the present
Gold Deposit Scheme and Gold Metal Loan Scheme, this new scheme, introduced in the Union
Budget for 2015-16 by Union Finance Minister Arun Jaitley, will help banks/other dealers to
monetise this gold

Why was Gold Monetisation Scheme introduced?

Stating that India is one of the largest consumers of gold in the world, Union Finance Minister
Arun Jaitley proposed during the Union Budget for 2015-16 fiscal a number of steps to monetise
the gold in India. He stated that there was more than 20,000 tonnes of gold in India; however,
most of it was not monetised in any way like trading. Gold Monetisation Scheme was proposed
as an alternative to the existing Gold Metal Loan Scheme and Gold Deposit Scheme. He said that
under the new scheme, the depositors of gold would be able to earn interest through their metal
accounts and the jewelers would be able to obtain gold loans through the metal accounts.

Under the programmes rules and regulations, banks and other dealers will be allowed to
monetise this gold as well. Jaitley also announced the Sovereign Gold Bond. It is an alternative
financial asset, a substitute of buying gold in its metal form. The bonds are supposed to have a
definite rate of interest. The bondholder can also redeem the bonds at the face value of the gold
that they own at the time of redemption.

The Union Finance Minister also stated that the national government would soon start working
on minting gold coins. These Indian gold coins will have the Ashok Chakra on the face. It is
expected that with the introduction of these coins, there will be less demand for coins that have
been produced outside the country, as well as it will play a major role in recycling the gold
present in the country.

Steps to followed for Monetising Ones Gold

As soon as the gold is deposited in the metal account, it will start earning interest. The process
will begin with a customer bringing gold to a banks or a specified agencys counter. Then the
concerned authorities will determine how pure the gold is. After that, the precise gold will be
credited to the account. Customers can also be asked to fill in a Know Your Customer form as a
part of the KYC process. After the gold is deposited, the banks or agencies will lend it to
jewelers for a rate of interest that is a slightly higher than what is being paid to the customers.
The principal amount, as well as the interest, will be calculated on the amount of gold being
deposited. For example, if someone puts in x kilos of gold and receives y percent interest on it,
then at the end of the tenure, that person will receive x+y kilos. The rate of interest to be paid to
the customer will be determined by the banks in question. It is likely that the gold deposits will
be maintained for tenure of at least a year.

The minimum amount that one is allowed to deposit in these accounts has been fixed at 30
grams. It is expected that this would at least encourage people to make small deposits in the
initial phase. The gold can be deposited in any form- jewelery or bullion. Customers will be
allowed to take either gold or cash at the time they redeem the accounts. However, they need to
make their preferences clear right at the time they avail the plan.

Intro:

The Prime minister of India, Shri Narendra Modi launched three gold based financial schemes
ahead of the Diwali festival, here in New Delhi today under the banner of Swarna Bharat
(Golden India) scheme. These schemes aim to monetize the idle gold lying in the vaults of
Indians across the country and at the same also issue gold coins and bonds.

It is estimated that Indian consumers have hoarded more than 20,000 tonnes of gold over the
centuries and most of it lies idle in bank lockers across the country and does not contribute to the
growth of the Indian economy. This scheme also aims to reduce the amount of gold that is
imported and smuggled into India every year by recycling the existing gold held by consumers to
Jewelers and Mints.

The 3 Gold Schemes that were launched as part of Swarna Bharat are :
 Indian Gold Coins

Gold Monetization Scheme

Sovereign Gold Bonds

Given below is a detailed explanation of how you can benefit from these schemes and the
procedure that is required to be followed for buying India Gold Coins , opening a Gold Deposit
Savings Account and subscribing to Gold Bonds.

Scheme No 1 India Gold Coins

For the first time in its independent history, India has minted a gold coin as part of the Gold
Monetisation program. The 24 Karat pure gold coin features Indias national emblem the Ashoka
Chakra on the front side and the face of Mahatma Gandhi on the rear side. The coin is available
in 3 denominations and is being minted in limited quantities initially and more may be
manufactured in the coming months depending on consumer demand.

Pricing of Indian Gold Coins

5 gm Indian Gold Coin Total Quantity: 15,000 coins Price Rs 14,600

10 gm Indian Gold Coin Total Quantity: 20,000 coins Price Rs 28,900

 20 gm Indian Gold Coin Total Quantity: Unavailable Price Rs 57,600

Gold Bullion (Bars) Total Quantity: 3750 Price Not Yet Available

Note : Prices are exclusive of VAT which is charged in many states at 1% of the total value of
your purchase.

Features of Indian Gold Coins by MMTC

It is made of 24 Karat Gold.

It is made in India as per BIS Standards by Metals and Minerals Trading Corporation of
India (MMTC) which is a public sector company.

It has Tamper-proof packaging which ensures it cannot be duplicated and can be easily
sold when you require money urgently.

Picture of India Gold Coin is given below, this is a sample image only and is not to be scaled.

o should you purchase this coin from the MMTC outlets in your city ?
The current price of gold on 5th November is Rs 26,250 for 10 gms of gold. The gold coin is
priced at a rate which is 10% higher than the prevailing market rate. However because of the
limited quantity and hype surrounding the scheme, it is expected to fetch more value as time
passes. Its price is expected to rise over the years as Indians have an insatiable demand for gold ,
so it is a good investment and might fetch a hefty premium decades from now provided it is
minted in limited quantities.

Where can you purchase Indian Gold Coins ?

India gold coins are currently available only at MMTC outlets across the country.

The cities where these outlets are based is given below :

Ahmedabad

Barbil

Bellary
 Bengaluru

Bhubaneswar

Chennai

Goa

Hospet

Hyderabad

Jaipur

Kolkata

Ludhiana

Mumbai

New Delhi

Puri

Visakhapatnam

If you are located in Mumbai, Raipur or Mysore you might not be able to purchase these coins.
Also the ability to book or purchase Indian Gold Coins online has not yet been made available,
so you will have to visit a store and purchase it physically. The addresses of different stores
spread across the country is available on the following
website. http://www.indiangoldcoin.com/en/

Scheme No 2 : Gold Monetization Scheme (Gold Savings Account)

Features of this scheme

This unique scheme will allow Indian citizens to deposit their existing gold holdings with Banks
who will in turn pay an interest rate of up to 2.5% per annum on the value of the gold. When you
deposit the gold you will receive a certificate of deposit.

Terms of the Gold Savings Account Deposits

Select Indian banks will accept gold deposits for 3 Different Term Periods.

Short Term Gold Deposit Scheme which lasts from 1 to 3 years.

Medium Term Gold Deposit Scheme which lasts from 5 to 7 years.

Long Term Gold Deposit Scheme which lasts from 12-15 years.

Note : The interest rate paid is highest on long term schemes which is a maximum of 2.5% per
annum.

The list of banks authorized to open Gold Deposit Savings Account is not yet available but it is
expected that State Bank of India, Canara Bank, HDFC Bank, ICICI Bank, Bank of Baroda,
Bank of Maharashtra and all other major banks will be a part of this scheme.

Benefits of this Scheme

Storing gold in bank lockers costs money in the form of annual charges and security deposit
which has to be paid to the bank. If you store gold at home, there is always a security risk that it
might get stolen. This scheme helps gold owners save money in terms of storage costs and also
helps to secure their investments.

When you deposit the gold with the bank in a gold savings account you will earn 2.5% interest
on the value of the gold. The interest paid will change as the value of gold changes in the market.
If the price of gold increases over time then the interest paid will also increase proportionately
hence your earnings will be linked to the floating gold price.
The other main benefit of this scheme is that your earnings from the Gold Savings Account are
exempt from capital gains, wealth and income tax. You are not required to pay any capital gains
tax on the appreciation in the value of gold deposited or on the interest you receive from it.

Procedure for Depositing Gold under Gold Monetisation Scheme

The minimum amount of gold that you can deposit is 30 gms, there is no maximum limit. First
you will need to verify the purity of the gold. This is done through collection and purity testing
centers recognized by the Government of India. After its purity is verified you will receive a
purity certificate and you can proceed to deposit it at the nearest bank.

Currently most of the Gold Purity Centers are based in West and North India.

The following cities have recognized gold purity centers

1. Ahmedabad

2. Ernakulam

3. Kolkatta

4. Mumbai

5. Nasik

6. New Delhi

7. Pune

8. Rajkot

9. Satara

10. Surat

11. Tirur
12. Trivanduram

13. Trichur

14. Vadodara

The addresses of the various centers can be found on the Ministry of Finance Website :

http://finmin.nic.in/swarnabharat/gold-monetisation.html

There are no purity testing centers for the states of Karnataka, Telangana, Andhra Pradesh, Orissa
and Tamil Nadu mentioned in the above list. This makes one wonder if this just a Diwali gift for
Gujaratis and Marwaris of North India who have supported Narendra Modi into Power ?

What is notable is that important capital cities like Bangalore, Hyderabad, Chennai and
Bhubhaneshwar which are ruled by parties opposed to the BJP have been left out from this
scheme. Let us hope that more purity testing centers are opened in the south of India which is
one of the largest consumers of gold in the country.

You can take your gold in any form to these centers and they will assess the gold in front of you
and provide you with a certificate on purity and gold content, then you can decide to deposit the
gold in any one of the schemes.

What will the Banks and Government do with the Gold you deposit in your Gold Savings
Account ?

The government plans to melt it and reissue it as India Gold coins and bullion bars for local
consumption as India currently imports 1000 Tonnes of gold. This demand for gold is met by
purchasing it from abroad in dollars which leads to a loss in foreign exchange weakening Indias
economic health. By recycling existing gold found in bank lockers the government hopes to save
on foreign exchange and reduce its import bill.

Eligibility to deposit Gold in this Scheme.

This scheme is open to Resident Indians, Hindu Undivided Families (HUF), Trusts and Mutual
Funds. The opening of gold deposit accounts at banks will require you to submit the same KYC
documents that you would furnish to open a savings account or fixed deposit.

Should you deposit your Gold in this Scheme ?

Since banks will sell this gold to MMTC and Jewellers to mint gold coins, you cannot expect to
get back your gold in the same form. Hence you can deposit gold coins, unused jewellery and
bullion bars but if you deposit your favorite jewellery it is unlikely you will see it again.

Redemption of Gold Monetization Scheme

When your deposit matures you can redeem your gold as .995 fineness gold or accept cash in
Indian rupees. You can also withdraw your gold before the scheme matures but there is a
minimum lock-in period and a penalty will be imposed. These details are expected to be
announced in the coming days.

Scheme No 3 : Sovereign Gold Bonds

The Gold Bonds are government securities issued by the RBI on behalf of the Government , it is
denominated in grams of gold. Gold bonds are basically substitutes for holding physical gold.

Investors have to pay the issue price in cash depending on the prevailing market rate of gold and
the bonds will be redeemed in cash on maturity.

Minimum Investment Limit

There is a minimum investment of 2 gms per bond and Indian citizens can purchase bonds up to
500 gms.

Benefits and features of this Scheme

Gold bonds will be issued in Demat or Paper Form.

The minimum tenure of the bond is for 8 years with optional exits after 5,6 and 7 years.
 These bonds can be used as collateral while applying from loans at banks.

You can also trade these bonds on Exchanges if you have it in De-materialized form.

You will earn interest at the rate of 2.75% on these bonds.

Where can you purchase these bonds?

You can purchase gold bonds at any post office, bank or NSC agent.

Last Date for application

You can apply for gold bonds in between November 5-20, 2015 and the bonds will be issued on
November 26th, 2015.

In this scenario Gold Monetization Scheme can be of some interest to those who have
willingness to invest their gold in countrys economy. Let us then explore the pros and cons of
scheme in light of Indian requirement of gold.

Indians since ages are known for their love for gold and gold storing habit, but it has an impact
on the economy as well, because more import of gold means more burden on Indian economy
and answer to this comes in form of GMS .The scheme will help in mobilizing gold held by
households and institutions like temples and financial institutions in the country. It will help
gems and jewellery sector by making gold available as raw material on loan from banks and will
help to meet reliance on import of gold over time to meet domestic demand.

Ornaments made are generally of 22 carat or below 22 carat , however in case of its conversion
into bars which is of 24 carat , a significant quantity of gold shall get reduced which in most
cases may not give the investor expected returns.
Its a time consuming process, approx. 45 min at preliminary stage of check at Purity testing
center and further 3-4 hrs of fire essay test and then the time that will be taken in the bank
premises. As per proposed scheme, minimum quantity to be invested is of 30 gms and the
interest received will be valued in gold, i.e. if one invests 30 gms of gold and gets 1 percent
interest he will be credited with 31 gms of gold, and if we look over the market rates they show
up for atleast 10 gms meaning thereby for a significant return the investor might have to wait for
a considerable time for growth of its investment up to 40 gms, else he will have to take return in
form of cash, but the option is to be decided beforehand by the investor for getting returns in
terms of gold or cash, i.e. at the time of deposit thereby reducing flexibility for investors .It is
also worth mentioning that minimum expenditure to be made by the investor for the process
would at minimum range from Rs. 900 to Rs.1500 approx. including various activities like
Melting charges, testing or fire assaying charges stone removing charges and melting losses.

Utilization of deposited gold is proposed to be in areas of CRR/SLR maintained by banks,

generation of foreign currency which may further be used in onward lending to exporters and
importers, conversion into gold coins for sale to customers, in domestic commodity exchanges
and lending to jewellers. In such cases risk assessment should be made beforehand that what will
be the risk return trade off for the investor if gold rates in international market goes down or
underlying currency rates fluctuates unprecedently, and what will be monetary provisions for
banks if at time of crisis for CRR and SLR, if bank customers start withdrawing gold investment
from the bank. Similarly on the other side of the coin banks can also arrange gold from
international market and lend it to jewellers for money making, and if it would be more
profitable then the soul purpose of the scheme will be defeated.

However, if the scheme gets good response from the Indian citizens, it will definitely have a
significant impact on improving the Indian Balance of Payments as Gold import constitutes to
the order of 10% of total imports .Now the onus lies on the ability to weigh the fact that- how
much better it is to get wisdom than gold is what the people and government of India have to
analyse for betterment of India.
In a move to reduce the demand for physical gold, Prime Minister Narendra Modion Thursday
launched three gold related schemes, including India gold coin bearing Ashok Chakra, gold
monetisation and sovereign gold bond schemes to tap the festive season ahead of Dhanteras and
Diwali.

The gold monetisation schemes (GMS) aims to tap household gold stocks of around 22,000
tonnes, the sovereign bond scheme would help shift part of the estimated 300 tonnes of physical
gold bars and coins purchased every year in the country for investment into the demat gold
bonds.

We take a look at all three schemes:

Gold coins

-The coins will be available in denominations of 5 and 10 grams. A 20 gram bar or bullion will
also be available. About 15,000 coins of 5 gm, 20,000 coins of 10 gm and 3,750 gold bullions
will be made available through MMTC outlets.

-The Indian Gold coin is unique in many aspects and will carry advanced anti-counterfeit
features and tamper proof packaging that will aid easy recycling.

-These coins will be distributed through designated and recognised MMTC outlets.

Gold Monetisation Scheme

Resident Indians (individuals, HUF, trusts, including mutual funds/exchange traded funds
registered under Sebi norms) can make deposits under the scheme. The minimum deposit at any
one time will be raw gold (bars, coins, jewellery excluding stones and other metals) equivalent to
30 grams of the precious metal of 995 fineness. There is no maximum limit for deposit under the
scheme and the metal will be accepted at the Collection and Purity Testing Centres (CPTC)
certified by the Bureau of Indian Standards.

Few things to know about the scheme

 Gold Monetisation Scheme can earn up to 2.50 per cent interest rate on their idle gold.

Interest rate on Medium and Long Term Government Deposit (MLTGD) are 2.25 per cent and
2.20 per cent, respectively.

The tenor of medium term would be between 5-7 years while long term would for 12-15 years
tenure.

The deposit under MLTGD category will be accepted by the designated banks on behalf of the
central government.

-Interest on deposits under the scheme will start accruing from the date of conversion of gold
deposited into tradable gold bars after refinement or 30 days after the receipt of gold at the
Collection and Purity Testing Centres (CPTC) or the banks designated branch, as the case may
be and whichever is earlier.

The principal and interest of the deposit under the scheme will be denominated in gold.

The gold received under MLTGD will be auctioned by the agencies notified by the government
and the sale proceeds will be credited to governments account held with RBI.

Reserve Bank of India will maintain the Gold Deposit Accounts denominated in gold in the
name of the designated banks that will in turn hold sub-accounts of individual depositors

Sovereign Gold Bond

Instead of buying gold in physical form investors can park their money in bonds which are
backed by gold. The bonds will be available both in demat and paper form. Sovereign Gold Bond
has more or equal advantage against the physical gold. The bond will be issued by RBI on behalf
of the Government of India. The bond would be restricted for sale to resident Indian entities and
the maximum allowable limit is 500 grams per person per year.

Few things to know about the scheme

 The RBI has fixed the public issue price of sovereign gold bonds at Rs 2,684 per gram.

These bonds will be issued in denominations of 5, 10, 50 and 100 grams of gold or other
denominations.

Applications for the bond will be accepted from November 5-20. The Bonds will be issued on
November 26.

The Bonds will be sold through banks and designated post offices as may be notified.

The borrowing through issuance of Bond will form part of market borrowing programme of
Government.

Bonds can be used as collateral for loans. The loan-to-value (LTV) ratio is to be set equal to
ordinary gold loan mandated by the Reserve Bank from time to time.

Know-your-customer (KYC) norms will be the same as that for purchase of physical gold.
KYC documents such as Voter ID, Aadhaar Card/PAN or TAN /Passport will be required.

-The interest on Gold Bonds shall be taxable as per the provision of Income Tax Act, 1961 (43 of
1961) and the capital gains tax shall also remain same as in the case of physical gold. Bonds will
be tradable on exchanges/NDS-OM from a date to be notified by RBI.

The Bonds will be eligible for Statutory Liquidity Ratio(SLR). Commission for distribution
shall be paid at the rate of 1% of the subscription amount.

http://www.simpleinterest.in/sovereign-gold-bond-scheme-2015/

Why is gold important?

Gold is important as a storage of value and within Indian cultures as a raw material for jewelry.
Many Indian citizens prefer to buy and store gold rather than put their money in banks, which in
turn means banks have fewer reserves and can lend out less money.

The lower amount of money lent means that credit is more expensive to come by, leading to a
more restrictive credit environment and therefore less investment by companies. This lower
investment results in lower growth, which reduces wages, employment, and GDP.

The recently introduced gold monetization schemes seek to curb the Indian publics high
propensity to hold physical gold, release liquidity towards productive investments, and moderate
demand for gold imports. Our estimates suggest that, if successful, the schemes can spur
economic growth, including by reducing the dependence of the jewelry industry on imported
gold. However, the viability of these schemes is linked to their ability to attract sufficient
demand, an important hurdle to the success of previous similar schemes. Moreover, the Indian
government and banks need to be mindful of valuation and exchange rate risks, which our
simulations show to be nontrivial.

India is the largest gold importer in the world, yet the government continues adding limitations to
importing gold into the country. Gold, in Indian history is more than an investment, it is a
culturally significant metal which has found a place in Indian hearts and homes alike.
Indian believes that gold is a form of Goddess Laxmi [ GODDESS OF WEALTH AND
PROSPERITY] and no one wants that Goddess laxmi leaves them .Therefore Indian don't sell
their used gold .But Now a days indian women exchanged their used gold jewellery with new
fancy Gold jewellery. In several case ,Indians lend money against their Gold deposits.

Gold is an uncommon metal, existing in the Earths crust as an element. It cannot be chemically
combined with all metals but only a few metals.

Gold is known as one of the most precious metals and has maintained finest possession from
ages. Gold becomes precious and valuable just because of its rarity. Gold has always been a
measurement of wealth since the beginning of civilization. Gold was a convenient means to
display one's wealth and was a symbol of accumulated wealth. Throughout history gold has been
a symbol of richness among all societies.
Indians adore gold very much. They want to more and more investment in gold. Gold also
diverts savings out of the formal financial system, where they can be harnessed for
investment. Gold is also offered to Indian deities. The Indian Hindu calendar even has
auspicious days to buy gold like Dhanteras and Dassera. Gold is also bought on festivals like
Onam, Pongal and Durga Puja. The predominant Hindu population finds mention of gold as a
commodity of immense value in their religious books. Gold is often associated with wealth,
prosperity and is even offered to deities.

Which means when dollars are spent on purchase of gold, we actually buy assets which can be
liquified anytime. The other good thing is when we spend dollars and buy gold, what basically
happens is the assets reaches indian households rather than being controlled by the government.
This is actually a good thing. Spending dollars for consumption items might be a drag on
economy but gold is actually an asset which doesnot affect the economy in anyway.

Gold has a special value to Indians. Its not just an investment avenue but much more than that.
Gold is a safe and traditional way of saving and transferring wealth from one generation to the
other. It is seen as symbol of social status, prosperity, well being and is of great cultural
importance. Weddings, anniversaries etc. are occasions where nothing can replace gifting gold in
the form of ornaments. Indians have great emotional attachment to gold. The love for gold sees
no biases or discrimination based on gender, caste, economic or social status, education or such
parameter. In fact this shiny metal seems to be one of the few things that unite India, the others
being Cricket and Bollywood.

Coming to its impact on economy, At the individual level, then, the gold craze makes sense. But
in aggregate it is a disaster for India. Imports of bullion impose a massive strain on its balance of
paymentsamounting to $54 billion in the year to March 2013. India is the world's biggest gold
importer, soaking up a third of the world's supply every year. Gold is the country's biggest
foreign purchase after oil. The impact? The current account deficit (the net outflow of money) is
5.4 percent of GDP, about double what economists recommend.

Though gold has several applications or uses the main reasons why Indians take to gold
are:
 Gold is considered an equivalent for liquid cash: Gold is highly liquid and portable as a
Security or Asset. It can be converted to cash anytime when an emergency arises and is
considered a friend in need.
Gold is considered as a Status Symbol: Especially in India gold symbolizes wealth. In
Indian weddings the Gold brought by the bride shows her family's status and wealth. It is
believed that a bride wearing 24k gold on their wedding to bring luck and happiness throughout
the married life.
Gold is a very good investment: Gold is an asset which has consistently increased in
value and thereby considered as a safe and secure investment. In the last five years Gold has
delivered over 20% YOY return. It is considered an effective diversifier which helps to reduce
portfolio risk.
Gold is considered as gift item: It's precious and worthy across all cultures and times. The
gold jewelry is given as gifts during weddings, festivals and other special occasions.
Gold has great religious significance: Gold is the symbol of the Hindu Goddess Lakshmi
and considered highly auspicious. Gold is brought or presented on festivals like Dhanteras and
Akshaya Tritiya. Toe rings are never made of gold as it represents the goddess of wealth and
should not be soiled by touching a human's feet.
Great Ornamental Value: Who can resist gold ornaments? Women of every age and time
have always loved wearing gold ornaments. Moreover, Gold ornaments are never out of fashion.
It also may be remembered that wedding rings are also traditionally made of gold to mark a long
lasting relationship.
Great value as Heirloom: Gold jewelry is something which can be passed down from one
generation to the other as ancestral property.This is why people say Gold is forever!

Pure gold (24k Gold) is metallic yellow in color, very flexible and soft in comparison with other
elements. Gold is a very stable metal and is not known to rust, diminish in quality, quantity or
luster by aging. Being a soft metal, it is easy to mold into beautiful jewelry. Gold for Jewelry
purpose is blended with additional alloys to make it stronger and increase its stability and to give
shimmer and color. Purity of gold is measured by Karat. Karat is a unit to measure the purity of
gold. We measure the purity level that ranges from 1 to 24 karat. So the lesser the Karat, the
lesser the purity of Gold and 24K Gold is supposed to be the most pure form of gold. Hence the
value of gold also increases with increase in the Karat.

The karat values of Gems ranges from 10K to 22K. The higher the karat, more pure the gold is.
The lesser the values of Karat, the gems are expected to be more solid and less valuable from the
pure gold perspective. Ornaments are generally made with 18K or 22K Gold which are mixed
with some other metals and hence are most desired for wedding jewelry and other purposes.

Two significant schemes were proposed in this respect. The first is the Gold
Monetisation Scheme, which would enable depositors, such as households and jewelers, to open
metal deposits with banks and place their gold holdings in them. You can also borrow money
using these accounts. Mar 5, 2015.

Monetization is the process of converting or establishing something into legal tender. While it
usually refers to the coining of currency or the printing of banknotes by central banks, it may
also take the form of a promissory currency (see text).

The term "monetization" may also be used informally to refer to exchanging possessions for cash
or cash equivalents, including selling a security interest, charging fees for something that used to
be free, or attempting to make money on goods or services that were previously unprofitable or
had been considered to have the potential to earn profits. And data monetization refers to a
spectrum of ways information assets can be converted into economic value.

Still another meaning of "monetization" denotes the process by which the U.S. Treasury accounts
for the face value of outstanding coinage. This procedure can extend even to one-of-a-kind
situations such as when the Treasury Department sold an extremely rare 1933 Double Eagle, the
amount of $20 was added to the final sale price, reflecting the fact that the coin was considered
to be issued into circulation as a result of the transaction.
Gold monetization: What it means

In his Budget speech, the Finance minister announced proposals to monetize

gold. This means, converting the countrys gold holdings into cash to spur
spending and investment, and limit the need to import gold.

Thu 5 Mar, 2015 3:20 PM IST

In his Budget speech, the Finance minister announced proposals to monetize gold. This means,
converting the countrys gold holdings into cash to spur spending and investment, and limit the
need to import gold.

Two significant schemes were proposed in this respect. The first is the Gold Monetisation
Scheme, which would enable depositors, such as households and jewelers, to open metal deposits
with banks and place their gold holdings in them. You can also borrow money using these
accounts.

The other initiative, a new Sovereign Gold Bond, would enable investors to trade in gold without
having to buy it physically. In addition, the introduction of a domestically-made Indian Gold
Coin, bearing an Ashoka Chakra was also announced. This could reduce the need for importing
gold coins.

Lets see how these policies might work and what their intended benefits are:

1) Gold deposit scheme: Although the Budget document does not talk about these at length,
they are expected to work similarly to bank accounts. People periodically deposit money in their
accounts and receive interest from the bank. The bank uses these deposits to make loans to others
and receives interest in return. The difference between the interest paid and received is the banks
income. Similarly, under the scheme, households and jewelers will be able to place their gold
holdings in a metal deposit with a bank. The bank will pay interest for this. It will lend this gold
to jewelers who require gold for their daily working and receive interest in return. The difference
between the two interests will be the banks income. You can withdraw your gold if you wish to
in times of need.
Advantages of the scheme. The scheme has two-pronged benefits. First, it will reduce the
dependence on imported gold. India is the worlds largest consumer of gold but has to import
about 97% of its annual gold demand. This is a drain on its forex reserves, and is a key reason
why the rupee value falls. On the other hand, there is 20,000 tons of gold that is unproductively
stashed away in household lockers, according to the Finance Minister. The scheme intends to
circulate this stashed gold in the economy by pulling it out of domestic safes and lending it to
those who need it. This will save the country billions of dollars of gold imports annually. Second,
stocks of gold jewelry represent enormous personal wealth. However, this wealth is only notional
because it doesnt contribute to growth. It can neither be spent nor invested. The gold deposit
scheme can attract deposits worth Rs 1 lakh crore, according to an Economic Times report
quoting SBI research. This gold will be converted into cash in the form of interest. Gold owners
can then use it for spending and banks for productive lending. Imagine how much growth an
extra trillion rupees can generate for the country. Another media report suggest that this scheme
can add 2% to the Gross Domestic Product (GDP) a measure of the economy.

2) Sovereign Gold Bond: The gold bond will work just like a regular coupon bearing bond that
the government issues to borrow money for various purposes. The government receives money
from investors, who invest in the bond, and pays a fixed periodic interest known as coupon on it.
On maturity, it returns the money to the investors. Similarly, in a gold bond, investors, such as
households, will be able to lend money to the government by investing in a bond whose price
will be based on the price of a fixed quantity of gold. On this, they will periodically receive a
coupon (1.5-2% according to estimates). On maturity or sale of the bond, the bond holder will
receive an amount equal to the value of the underlying amount of gold as on that date. Therefore,
they will get the same return as buying gold bars or coins and selling them later, when their price
increases.

Advantage of the scheme: The benefit of this scheme is that it will remove the need to import
gold for investment purposes. At present, when people buy gold as an investment, it has to be
imported from outside. This leads to an outflow of forex and increases Indias current account
deficit the amount India owes to the world in foreign currency. With the introduction of the
bond, the entire transaction will take place in cash, removing the need for buying imported gold.
 WHY IS THERE A GOLD
MONETISATION SCHEME

Gold lying in the locker appreciates in value if gold price goes up but it doesn't pay you a regular
interest or dividend. On the contrary, you incur carrying costs on it (bank locker charges). The
monetisation scheme will allow you to earn some regular interest on your gold and save you
carrying costs as well. It is a gold savings account which will earn interest for the gold that you
deposit in it. Your gold can be deposited in any physical form jewellery, coins or bars. This
gold will then earn interest based on gold weight and also the appreciation of the metal value.
You get back your gold in the equivalent of 995 fineness gold or Indian rupees as you desire (the
option to be exercised at the time of deposit).

BENEFITS ON
OPENING AN ACCOUNT

There are many positives to depositing under the Gold Monetisation scheme:

The gold monetisation scheme earns interest for your gold jewellery lying in your locker.
Broken jewellery or jewellery that you don't want to wear can earn interest for you in gold.

Coins and bars can earn interest apart from the appreciation of value

Your gold will be securely maintained by the bank.

Redemption is possible in physical gold or rupees hence giving your gold purchase
further earning opportunity.

Earnings are exempt from capital gains tax, wealth tax and income tax. There will be no
capital gains tax on the appreciation in the value of gold deposited, or on the interest you make
from it.
TERM INVOLVED

The designated banks will accept gold deposits under the Short Term (1-3 years) Bank Deposit as
well as Medium (5-7 years) and Long (12-15 years) Term Government Deposit Schemes.

VERIFY THE PURITY OF GOLD

It is important to check your gold's purity and thankfully that can now be done through
Collection and Purity Testing Centres. You can take your gold in any form to these centres and
they will assess the gold in front of you and provide you with a certificate on purity and gold
content, once you decide to deposit the gold in one of the deposit schemes.

ELIGIBILITY FOR THE DEPOSITOR

Resident Indians (Individuals, HUF, Trusts including Mutual Funds/Exchange Traded Funds
registered under SEBI (Mutual Fund) Regulations and Companies) can make deposits under the
scheme. The opening of gold deposit accounts will be subject to the same rules with regard to
customer identification as are applicable to any other deposit account.

WHAT WILL THE BANKS

DO WITH THE GOLD

The designated banks may sell or lend the gold accepted under the short-term bank deposit to
MMTC for minting India Gold Coins and to jewellers, or sell it to other designated banks
participating in the scheme.

Gold Monetization Scheme

The Sovereign Gold Bond Scheme is more likely to attract the investors attention in a big way
as it offers higher returns than those of the investments in physical gold and exchange traded
funds. Unless the Gold Monetization Scheme addresses the emotional attachment of investors
with physical gold and shows any significant improvement over the previous gold deposit
scheme it is likely to fail.
Introduction

Indians love gold. The decision to purchase gold is more often than not an emotional decision. It
is a quintessential item in most of our social customs and celebrations, festivals, marriages,
anniversaries, religious rituals, etc. Even governments hold gold as an asset in their reserves (See
Table 1). That is why the demand for gold is inelastic in the financial markets in spite of rise in
its prices (See Figure 1). According to the World Gold Council, prices of gold in the past decade
rose by 400% in the Indian Rupee terms but this did not have any effect on its consumption. In
fact, its consumption, in quantity terms, registered an uptick by more than 70% in the last
decade.[i] Demand for gold in India has been ever increasing mainly due to its high resale
value, demonstration effect, rising affluent middle class, a hedge against inflation and a safe
haven for black money.

Table 1: Official Gold Reserves of Various Countries as of 31 March, 2015

Official Gold Holdings as % o

Name of the Country Gold Reserves (in Tonnes)
Total Reserves

The US 8133.50 74

Germany 3383.40 68

Italy 2451.80 67

France 2435.40 65

Russia 1238.30 13

China 1054.10 1

Switzerland 1040.00 7

Japan 765.20 2

Netherlands 612.50 57
 India 557.70 6

Source: World Gold Council Report, 2015

Figure-1: Movement of Gold Price in the Past Decade

Source: http://goldprice.org/

Demand for gold constitutes of jewellery (56%), followed by investment purpose (27%) and
industrial use (17 %).[ii] India imported 661.4 tonnes of gold worth $33 billion in 201314 and it
is the second largest imported item after crude oil in our import bill. Import of gold (on net basis,
after reckoning export of gems and jewellery), constitutes nearly 25% of Indias trade deficit in
201314. Hence, Government of India (GoI) restricted the import of gold through various
measures, such as increasing import duty on the gold, stipulating additional conditions, such as
80:20 rule for imports,[iii] etc.
Though these preventive measures helped in bringing down our current account deficit to some
extent, it ultimately resulted in unbridled smuggling of gold into the country through various
channels. Illegal import of gold seized by the Indian customs authorities touched the highest
point of Rs 690 crore during 201314. The Bharatiya Janata Party (BJP)-led government, which
was elected in May 2014, relaxed some of the restrictions on import of gold that spiraled the
import bill once again. Demand for gold in India through 201014 is shown in Figure 2. World
Gold Council forecast demand for gold in India at 950 tonnes in 2015 (Jha 2015).

Figure 2: Demand for Gold in India (in Tonnes)

Source: World Gold Council Report, 2014

With a view to reducing the reliance on imports to meet the domestic demand for gold in
physical form and bringing out the idle gold for productive use, GoI introduced the Gold
Monetization Scheme (GMS) and issue of sovereign gold bonds vide its notification dated 15
September, 2015. Its main objective was to mobilise a portion of gold from the estimated gold
deposits of 20,000 tonnes from the Indian households, temples, religious trusts, etc. The scheme
that was launched in November 2015 was meant for alternative uses of gold for optimum
utilisation of the yellow metal by the investors.

GMS and its Mechanics

The proposed GMS is a revamped version of the erstwhile Gold Deposit Scheme (GDS) and
Gold Metal Loan (GML) which were launched in 1999 and 1998 respectively. As per the current
scheme, the depositor of gold would be given a certificate specifying the amount and purity of
the deposited gold, once the investor agrees to do so after fire-assay test (Government of India
2015) done by Collection and Purity Test Centres (CPTCs, certified by Bureau of Indian
Standards).

Subsequently, the customer could submit this certificate to any designated branch of a bank to
open a gold savings account in his/her name subject to fulfilling Know Your Customer (KYC)
norms. Accordingly, the customers account would be credited by the bank by an amount
equivalent to the quantity of standard gold of 995 fineness, based on the prevailing market
prices. The bank would bear the cost of fire-assay test in case of deposited gold, otherwise it
would be borne by the customer. Minimum amount of gold that could be deposited under the
scheme is placed at 30 gm in order to encourage collection of gold from small depositors.

GMS can be operated under three categories, namely (a) short-term deposit (for one to three
years with a rollout in multiples of one year); (b) medium term deposit (for five to seven years)
and (c) long term deposit (for 12 to 15 years).

While the short-term gold deposits are accepted by banks on their own account, medium and
long term gold deposits are accepted by banks on behalf of the GoI. Interest and principal on the
short-term deposits would be denominated in volume terms, that is, gold in grams. Rate of
interest on these deposits would be decided by the banks based on the prevailing market
conditions, international lease rates, etc. In case of the medium and long term deposits, interest
would be denominated in the Indian rupees and would be decided by the GoI in consultation with
the Reserve Bank of India (RBI). Though interest rates on these deposits have not been made
public, industry sources indicated that it may range from 2%3% per annum (PTI 2015b).

Use of Deposited Gold

The gold mobilised under short term deposits can be sold or lent by the banks to Metals &
Minerals Trading Corporation (MMTC) for minting gold coins or to other banks or to jewelers.
However, the gold mobilised under the medium and long term deposits would be auctioned by
MMTC and the sale proceeds would be credited to the GoIs account. The gold deposits
mobilised by the banks under the scheme would be reckoned for maintenance of statutory
liquidity ratio (SLR) (Reserve Bank of India 2015).

Merits and Limitations

The scheme has certain advantages viz, GoI proposes to make a provision for Gold Reserve
Fund to address price and currency risks in case of medium and long term deposits. In other
words, if the price of the gold increases at the time of redemption of the deposits, the government
would bear the risk and the investor would get the benefit to that extent. Commercial banks,
however, would provide safety on the short term deposits. As such, investors would not have any
safety concerns in this regard. The deposits can be withdrawn prematurely subject to minimum
lock-in period and payment of penalty. Therefore, the scheme offers liquidity on the gold
deposits, of all tenures.

The scheme offers two kinds of returnfixed interest income on the gold deposit and capital
gains, if any, through appreciation in gold price. Hence, the scheme is more attractive, in terms
of returns, when compared with the investment in physical gold. As the government has
stipulated minimum investment of gold at 30 gm (as against 200 gm in the earlier GDS of 1999)
to lure domestic households, it would encourage investors to maintain gold in the form of
financial asset rather than a physical asset.

Besides, the gold depositor is done away with payment of rent for storing physical gold as in
the case of keeping physical gold in the banks lockers. However, at the time of redemption of
gold deposit, the depositor may not get the same jewellery or ornaments, which she was holding
earlier. The previous GDS of 1999 provided tax incentives, such as exemption from Income Tax
and Wealth Tax. As per the notification issued by the GoI, the current scheme would also offer
the same kind of tax benefits to the investors.

However, on the flip side, the scheme has features which may work against it. The jewellery held
by the households in India is occasionally used; even if it is so, it is treated as a matter of status
symbol and to showcase the wealth of a particular individual. One can never be sure how
people will behave when it comes to physical gold. Introduction of gold futures on the Indian
Commodity Exchanges has not deterred appetite for physical gold holdings.

Therefore, melting the jewellery, as proposed under the current scheme, will defeat the very
purpose of the scheme. As gold is used as a store of wealth, many people, especially from the
rural/semi-urban areas, who buy gold on various occasions or who wish to park their liquid cash
in the scheme might not have proper record of their income and Permanent Account Number
(PAN), etc. In fact, most of the transactions in gold take place on cash basis and without any
documentation.

However, Arun Jaitley, in his recent speech on 9 September 2015, categorically mentioned that
the GMS is not black money immunity scheme (PTI 2015a).

Despite the proposed tax exemptions, very few investors are interested to disclose their income
to tax authorities by depositing gold under the scheme. Hence, the scheme may mobilise gold
only to a limited extent. While the previous scheme (1999) offered relatively low interest rate of
0.75% per annum on the gold deposits, which was one of the reasons for its failure, the present
scheme appears to be a better version than the earlier one. As the banks are free to decide on
interest rates with respect to short term gold deposits, they may not be willing to offer higher
interest rates on the deposits, in the absence of any incentives/regulations. Lower interest rates
will not attract the investors, in any case. Hence, to attract more number of investors under the
scheme, the return (expected capital gain plus rate of interest) offered should be at least equal to
or higher than that of the prevailing inflation rate (Reserve Bank of India 2013). One important
point to note is that appreciation in value of gold may not happen in all market conditions.

In view of the above, only the gold that is held as investment might flow into the scheme.
However, the quantity of gold held as investment is much lower than that of the gold held in the
form of jewellery and other ornaments. At present, the number of CPTCs (Government of India
2015) located in India are only 331. Further, distribution of these centres is heavily skewed in
favour of southern part of India (142, comprising 43 %), out of which Tamil Nadu has the
highest number (57) followed by Kerala (38). Limited number of CPTCs are existing in the
northern and western parts of India. Except for one centre in Assam, there is no other centre
located in the North East. The skewed distribution of CPTCs will distort the nationwide
implementation of the scheme and make the scheme confined only to certain pockets of the
country.

PostscriptAfter the Launch

Narendra Modi formally launched Swarna Bharatthe formal name for the GMS on 5
November 2015.
Under this scheme, depositors have the option to take cash or gold on maturity, but the
preference should be declared at the time of deposit itself. Once the option is declared by the
depositors, it is irrevocable. In case of premature redemption, cash or gold will be given to the
depositor, at the discretion of the bank.

In case of short-term deposits under the scheme, a leading Indian public sector bank indicated
that interest rate at rate of 0.50% for one year, 0.55% for two years and 0.60% for three years.
While the government is offering 2.25% on medium term deposits, it is offering 2.50% on long
term deposits.

One reason for lower interest rates offered by banks under the GMS is that the international gold
lease rates (the rates at which banks lend gold to jewellers) are hovered around 3%. Besides, the
banks have to bear costs, such as storage, assaying and transportation costs.

The short-term deposits under the scheme have minimum lock-in period, say 12 months as per
the notification of some banks in India. RBI allows Loan-To-Value (LTV) ratio of 70% in respect
of gold deposits.

The scheme is attractive especially for the taxpayers as interest income from this deposit will be
exempt from tax. Further, the scheme is exempted from the purview of wealth tax and capital
gain tax (on appreciation in the price of gold).

Conclusion

Gold monetisation and gold bond schemes are progressive measures introduced by the
government for optimum utilisation of gold by the investors and also towards reducing Indias
current account deficit. While the GMS is targeted at harnessing the gold lying idle with the
individual households, temples, religious trusts, etc, the GBS is designed to address the
investment demand in non-physical gold. GMS might not be very successful since it does not
address emotional attachment of investors with physical gold and does not have any significant
improvement over the previous gold deposit scheme. Besides, appreciation in value of gold
(capital gains) may not happen always. However, GBS is more likely to attract the investors
attention in a big way as it offers higher returns than those of the investments in physical gold
and the exchange-traded funds. Only time will tell whether the tax and interest rate incentives
offered by the government will determine success of these schemes.
Notes
[i]
World Gold Council, 2015, available at http://www.gold.org/
[ii]
World Gold Council, 2015, available at http://www.gold.org/
[iii]
80:20 rule on gold imports was introduced in August 2013. The rule mandates the traders to
export minimum 20% of all their gold imports.

References

Government of India (2015): Introduction of Gold Monetization Schemes,, Ministry of

Finance: Department of Economic Affairs (Investment Division), 15 September, accessed on 16
November
2015, http://finmin.nic.in/the_ministry/dept_eco_affairs/investment_division/GoldMonetizationS
cheme15092015.pdf.

Jha, Dilip Kumar (2015): Gold Heads for first Samvat Gain in 3 yrs, Business Standard, 17
October, accessed on 16 November 2015, http://www.business-
standard.com/article/markets/gold-heads-for-first-samvat-gain-in-3-yrs-115101700483_1.html.

PTI (2015a): Cabinet Approves Gold Monetisation Scheme and Gold Bonds, Economic Times,
9 September, accessed on 16 November
2015, http://articles.economictimes.indiatimes.com/2015-09-09/news/66363421_1_idle-gold-
physical-gold-gold-reserves.

PTI (2015b): Gold Monetisation Scheme: 2% Interest Likely on Gold Deposits, Economic
Times, 10 September, accessed on 16 November
2015, http://economictimes.indiatimes.com/news/economy/finance/gold-monetisation-scheme-2-
interest-likely-on-gold-deposits/articleshow/48903598.cms.

Reserve Bank of India (2013): Report of the Working Group to Study the Issues Related to
Gold Imports and Gold Loans NBFCs in India, February, accessed on 16 November
2015, https://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/RSIS060213FLS.pdf.

Reserve Bank of India (2015): RBI Issues Direction on Implementation of Gold Monetisation
Scheme (GMS), 2015, Department of Communication, 22 October, accessed on 16 November
2015, https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR97410786F8305D94F25AE6FED57
6732291B.PDF.

Gold has outperformed most asset classes

Analysts are scrambling to increase their gold price forecasts, as the gold price continues to rise,
outperforming all major asset classes.

A weak Japanese bond auction on August 2nd unnerved markets, pushing the gold price up 29%
for the year in US dollar terms. Many analysts are interpreting weak Japanese Government Bond
demand as a signal that investors are starting to lose confidence in the effectiveness of
unconventional monetary policies, following increasingly desperate bids by the worlds central
banks to reflate the global economy.

In this environment, we believe investors are using gold to hedge portfolio risk as they add more
stocks and low quality bonds to their asset mix.

http://www.gold.org/statistics#group2

Gold Monetization Scheme:

The Gold Monetization Scheme was launched on 5thNovember by the Prime Minister Narenda
Modi.The scheme is designed to help you earn interest on your unused gold lying idle in bank
lockers. The Gold Monetization Scheme is basically a new deposit tool to ensure mobilization of
gold possessed by various families and institutions in India. It is expected that the scheme would
turn gold into a productive asset in India. This new gold scheme is a modification of the existing
Gold Deposit Scheme (GDS) and Gold Metal Loan Scheme (GML), and it would replace the
existing Gold Deposit Scheme, 1999.

Deposit allowed under Gold Monetization: Scheme 2015An investor can deposit gold for short,
medium and long terms under the Gold Monetization Scheme. The scheme would allow an
investor to deposit gold in Short Term Bank Deposits (SRBD) and Medium and Long Term
Government Deposit (MLTGD). The tenure of a Short Term Bank Deposit is 1-3 years. The
Medium and Long Term Government Deposits can be opened for 5 -7 years and 12-15 years
respectively. The Short Term Bank Deposit would be accepted by individual banks on their own
account. But the Medium and Long Term Government Deposits would be accepted by banks on
behalf of the Government of India based upon notification issued by the Reserve Bank of India.
Gold Monetization Scheme Eligibility:
All residents Indians can invest in this new Gold Monetization Scheme. 2015.

Key features of Gold Monetization: SchemeThe Gold Monetization Scheme comes with the
following features:
*.The scheme accepts a minimum deposit of 30gm of raw gold in the form of a bar, coin or
jewelry.
*.There is no maximum limit of investment under this scheme.
*.The scheme allows premature withdrawal after a minimum lock-in period. However, itcharges
penalty for such withdrawals.
*.All designated commercial banks would be able to implement the Gold Monetization Scheme
in India.
*.The scheme would offer interest at 2.50% per year which is higher than previous ratesoffered
on gold investments.
*.The short term deposits offered by Gold Monetization Scheme can be redeemed in either gold
or in rupees at current rates applicable at the time of redemption.

Benefits of investing in Gold Monetization Scheme:

By investing gold in the Gold Monetization Scheme2015, an investor can enjoy the following
benefits:
*.You would earn interest on your idle gold which would add value to your savings.
*.The scheme would benefit the country by reducing its gold import.
*.The schemes offers flexibility. You can withdraw your investment/gold as and when you need
it.
*.You can start your investment with as low as 30gm of gold.

A portion of the gold collected through the Gold Monetization Scheme can be sold or lent to
MMTC and RBI for minting of gold coins and sale. Thus, the gold deposited through this
scheme will be re-circulated in the country to help reduce gold imports. Gold being the most
precious asset of thecountry, the Government of India aims to use it for the purpose of nation
building and strengthen the countrys economy

How does Gold monetization scheme work? Is it really useful?

Government of India has released the draft guidelines for its ambitiousgold monetization
scheme. Todays headlines in the media said Earn interest on your jewellery. Interesting to
hear this news,isnt it? What if you could park jewellerysitting idle at home in a bank and earn
interest on it? Is this as simple as it sounds? Read this article.
Ms.Goldy has over 500 grams of gold in the form of ornaments such as bangles, necklaces,
earrings, etc. She keeps them in a bank safe locker and wears it as andwhen required.
Mr.Chinnappa has told her that, instead of keeping the gold in bank locker, she can deposit them
in goldmonetization scheme (proposed to be launched by the government soon). By doing so, her
jewellery is not only safe but also earns a reasonable interest on it. She can take back the
jewellery as and when she wants (like the way she was withdrawing from her safe bank locker).
Is this how scheme works?
No. this is not the way Gold Monetizationscheme (GMS) works!
1.Ms. Goldy has to visit the bank and show interest in GMS. Then the banker will engage purity
testing centres to certify the purity of gold. The testing centres will tell theapproximate amount
of pure gold.
1.If Ms. Goldy agrees to the amount as valued by the centre, she will haveto fill up a
bank/KYCform and give her consentfor melting the gold. (which means the jewellery will lose
its form and shape)

1.Suppose, Ms. Goldy agrees for melting the gold, the purity centre will clean the dirt, studs,
meena etc from the ornaments. The studs will be handed-over to her and right in front of the
customer the jewellery will be melted through a fire assay.

1.Even at this stage, if Ms. Goldy decides to take back the gold, she can do so! (But not in the
form of ornaments but in the form of gold bars) after paying a nominal fee. She may agree to
deposit her gold inwhich case, a certificate by the collection centre certifying the amount and
purity of the deposited gold will be given to her.

1.With this certificate, Ms. Goldy should open a Gold saving account and credit the quantity of
gold intothis account for a period of 1 year and renew thereafter.

1.The bank will commit to paying an interest to the customer which will be payable after 30/60
days of opening of the Gold Savings Account.Both principal and interest to be paid to the
depositors of gold, will bevalued in gold. For example if a customer deposits 100 gms of gold
and gets 1 per cent interest, then, on maturity he has a credit of 101 gms

1.On maturity, Ms. Goldy will have the option of redemption either in cash or in gold.

1.Ms. Goldy will get exemption from Capital Gains Tax, Wealth tax and Income Tax, etc.
Basically, all increase in the value or quantity or gain from this scheme will be totally exempt
from tax.

This is about the way this scheme works for common citizens. There are other benefits to the
banks, we will discuss about it separately.
Now the question is, whether this schemeis useful to the citizens?
*.If the ornaments are converted into gold bars, how will it interest the citizens? If it is to be
melted, they can as well sell it and keep the money in bank fixed deposits and buy gold as and
when they want it.
*.Or they can also invest in Gold ETFs
*.This scheme will be a sure success if the customer gets the ornaments in its original form. If
not, I have my own doubts about the success of this scheme.

The government is estimating around Rs.60 lakh Crores of gold in the hands ofhouseholds in
India. (I hope this estimateis not likeblack moneyestimate Rs.70 lakh Crores!) Even if a portion
of this idle assets gets into the economy, it will be a great help to the country. Will this scheme
work? We will get to know down the line.

How much gold can be deposited in the scheme?

The minimum quantity of gold that a customer can deposit is proposed to be 30 grams. The gold
can be in any form, i.e., bullion or jewellery.

How to check the purity of gold to be deposited in the scheme?

Customer interested in depositing the gold shall get its purity tested, which shall be done at
Purity Testing Centre through a XRF machine.If customers agree with amount of pure gold
determined after the purity testing, he shall fill-up a Bank/KYC form and give his consent for
melting the gold.

What is Purity Testing Centre?There are 350 BIS certified HallmarkingCentres which are
spread across various parts of the Country. Since these Hallmarking Centers are equipped to
conduct a test of purity of jewellery in ashort span of time, they shall act as Purity Testing
Centers for the scheme.

In which cities Gold Monetization Schemewill be launched?

Initially the scheme is proposed to be launched in selected cities only. However, if the
requirement arises the scheme shall be extended to other cities.Currently, it is proposed to open
331 such centers across India.

How gold shall be melted?

The gold ornaments so collected from the customers shall be cleaned of its dirt, studs, meena,
etc., which shall be handed-over to the customer only.Net weight of the jewellery shall be taken
after such removal. Thereafter, right in front of the customer the jewellery will be melted and
through a fire assay, its purity will be ascertained.

How to deposit the gold?

After determining the purity of gold by fire assay, the customer can chose to refuse to deposit the
gold. In that case, hecan take back the melted gold in the form of gold bars, after paying a
nominal fee.If the customer agrees to deposit the gold, he will be given a certificate by
thecollection centre certifying the amount and purity of the deposited gold. In this case, the
melting charges shall be borne by the bank.

How to open the gold saving account?

When the customer produces the certificate of gold deposited at the Purity Testing Centre, the
bank will opena Gold Savings Account for the customer and credit the quantity of gold into
the customers account. Simultaneously, the Purity Verification Centre will also inform the bank
about the deposit made.

Is Interest payable on gold deposited in gold saving account?

Yes, banks will pay interest on Gold Savings Account after 30/60 days of account opening. The
rate of interest is proposed to be decided by banks directly. Both principal and interest to be paid
to the depositor shall be valued in terms of gold.

How to withdraw from gold saving account?

Customer will have the option of redemption from gold saving account either in cash or in gold.
Such an option will have to be exercised at the time of making the deposit. The tenure of the
deposit will be minimum of 1 year and with a roll out in multiples of one year.

Do any capital gains arise from such transaction?

In the Gold Deposit Scheme (1999), the customers received exemption from capital gains tax.
So, tax exemptions are likely to be made available for this scheme as well.Amount earned from
Gold Saving Account under this scheme is likely to be exempted under Income-tax Act after
due examination.
How gold so deposited shall be used by the Banks?
The banks may be permitted to utilize the gold in the following ways:
1.Deposit the mobilized gold as part oftheir CRR/SLR requirements with RBI;
2.Sell the deposited gold to generate foreign currency;
3.Gold can be converted in gold coins for further sale to customers;
4.Lending to the jewellers.

How gold can be lent to the jewellers?

When a gold loan is sanctioned, the jewellers will receive physical delivery ofgold. The banks
will, in turn, make the requisite entry in the Jewellers Gold Loan Account. It is proposed that the
interest to be charged from the jewellershall cover the following:
1.Interest rate paid to the depositors of gold
2.Fee paid to the refiners and Purity Verification Centres.
3.Profit margin of the banks

IMP http://www.gold.org/supply-and-demand/gold-demand-trends

IMP http://www.gold.org/investment/interactive-gold-price-chart

IMP http://www.gold.org/investment/interactive-gold-price-chart/2016

IMP http://www.gold.org/research/gold-investor-archive

IMP http://www.gold.org/supply-and-demand

IMP http://www.gold.org/supply-and-demand/gold-demand-trends/back-issues/gold-demand-
trends-q1-2016

IMP http://www.gold.org/supply-and-demand/gold-demand-trends/back-issues/gold-demand-
trends-full-year-2015

http://www.gold.org/investment

http://www.gold.org/technology/innovation
http://www.gold.org/research?
date_from[value]&date_to[value]&&lang=All&items_per_page=10&page=1

http://www.gold.org/research?
date_from[value]=&date_to[value]=&&lang=All&items_per_page=10&page=2

http://www.gold.org/research/latest-sales-under-fourth-central-bank-gold-agreement-cbga4

http://www.gold.org/gold-mining/economic-contribution/social-economic-impact

http://www.gold.org/research/latest-world-official-gold-reserves

http://www.gold.org/statistics#group1

http://research.perthmint.com.au/2015/05/21/indian-gold-monetisation-scheme-a-temporary-
solution/

http://research.perthmint.com.au/2015/11/09/indian-gold-monetisation-schemes/

http://finmin.nic.in/swarnabharat/gold-monetisation.html

Imp News https://in.finance.yahoo.com/news/gold-monetization--what-it-means-

095100975.html

https://www.bankbazaar.com/gold-rate/gold-monetization-scheme.html

Interactive chart help

This interactive chart provides price data in several currencies, frequencies and weight units. The
first price series selected will be displayed in currency units on the primary vertical axis (left).
The second series added will be displayed in currency units on the secondary vertical axis (right).
Thereafter, price series will be zero-indexed to the first displayed date with the axis values
displayed as cumulative % changes.

Currencies:

USD = US dollar

GBP = pound sterling

EUR = euro

AUD = Australian dollar

CAD = Canadian dollar

CHF = Swiss franc

JPY = Japanese yen

ZAR = South African rand

INR = Indian rupee

CNY = Chinese renminbi

HKD = Hong Kong dollar

MXN = Mexican peso

Weights:

Oz = 1 troy ounce

Grammes = 0.032151 troy ounces

Kg = 32.150747 troy ounces

Tonnes = 32,150,7466 troy ounces

Tael = 1.203370 troy ounces

 Tola = 0.374878 troy ounces

Data frequency

Optimised data at the following frequencies:

Between now and 5 years ago - daily

5 years ago and 15 years ago - weekly

15 years ago and 25 years ago - monthly

more than 25 years ago - quarterly

Quarterly

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Daily, please note loading daily data will slow down the chart system.

Why invest in gold

Gold has unique properties as an asset class. Modest allocations to gold of 2 per cent to 10 per
cent can protect and enhance the performance of an investment portfolio.* A 5 per cent to 6 per
cent allocation is optimal for investors with a well-balanced 60/40 portfolio.*

Retail buyers are embracing golds investment properties. Even so, gold still only makes up less
than one per cent of investors asset allocations.

Investors of all levels of experience are attracted to gold as a solid, tangible and long-term store
of value that historically has moved independently of other assets.* Our analysis shows that gold
can be used in portfolios to protect global purchasing power, reduce portfolio volatility
and minimise losses during periods of market shock. It can serve as a high-quality, liquid asset to
be used when selling other assets would cause losses. National central banks, tewards of the
worlds largest long-term investment portfolios, use gold to mitigate portfolio risk in this way,
and have been net buyers of gold since 2010.

Gold has also become more readily accessible, due to the development of a range of products,
which investors and advisors can include in their own and their clients portfolios. The diversity
of gold-backed and gold-related products means that gold can be used to enhance a wider
variety of individual investment strategies and risk tolerances.
Investors also make use of golds lack of correlation with other assets to diversify their portfolios
and hedge against currency risk.

The World Gold Council is the global authority on gold and gold markets, and produces high-
quality research on what drives the gold market, and the merits of investing in gold.

How to invest in gold

There are many ways to invest in gold. Different products can be used to achieve a variety of
investment objectives.

Investors should consider the options available in their market, the form of investment that is
appropriate to their circumstances, and the nature of professional advice they will require.

Investors can buy physical gold through coins or bars; they can buy products backed by physical
gold, which offer direct exposure to the gold price; or they can buy other gold-linked products,
which are directly related to the gold price but do not include ownership of gold.

In recent years, innovation has led to products that offer greater flexibility and accessibility to
investors, such as exchange-traded funds (ETFs) as well as additional risk management tools for
sophisticated investors, including derivatives and structured products.

The various gold-related investment products have different risk and return profiles, liquidity
characteristics and fees. Typically, an asset allocation strategy will consider long-term versus
medium-term returns, and how gold investment products perform in positive or negative
correlation with other assets.
 Bars and coins

Purchasing gold coins and bars, either to store personally, or to be held securely on ones behalf
by a bank or other financial intermediary.

Examples:

Coins

Collector coins

Gold bullion bars

Exchange-traded funds (ETFs)

Financial products physically backed with allocated gold bullion, listed on a stock exchange, and
bought and sold in the form of shares.

Example:

(GLD)

Gold accounts

Gold bullion stored and managed by a bullion dealer or depository.

Examples:

Allocated gold accounts

Unallocated gold accounts

Gold accumulation plans

Other gold-linked products

 Indirect investments in gold, via financial instruments, without direct ownership of the metal.

Examples:

Gold mining stocks

Futures and options

Innovation

Industrial demand for gold continues to be dominated by the electronics sector. Golds
conductive properties and resistance to corrosion means that it remains central to innovations in
wiring and coatings in this field.

However, the metals unique properties and the advent of nanotechnology are driving new uses
on the cutting edge of medicine, environmental management and advanced electronics, which
could grow into significant new markets for gold.
Nanotechnology is a branch of science that exploits both the properties exhibited by materials at
the scale of a few nanometresthe size of a few atomsand our rapidly evolving understanding
of biology and chemistry to build materials with specific roles. Through these techniques, gold
can be used to build highly-targeted methods for delivering drugs into the human body; to create
conducting plastics and specialised pigments; or advanced catalysts which can purify water or
air.

Gold Monetization Scheme

The Gold Monetization Scheme was launched on 5th November by the Prime Minister Narenda
Modi. The scheme is designed to help you earn interest on your unused gold lying idle in bank
 lockers. The Gold Monetization Scheme is basically a new deposit tool to ensure mobilization of
gold possessed by various families and institutions in India. It is expected that the scheme would
turn gold into a productive asset in India. This new gold scheme is a modification of the existing
Gold Deposit Scheme (GDS) and Gold Metal Loan Scheme (GML), and it would replace the
existing Gold Deposit Scheme, 1999.

Deposit allowed under Gold Monetization Scheme 2015

An investor can deposit gold for short, medium and long terms under the Gold Monetization
Scheme. The scheme would allow an investor to deposit gold in Short Term Bank Deposits
(SRBD) and Medium and Long Term Government Deposit (MLTGD). The tenure of a Short
Term Bank Deposit is 1-3 years. The Medium and Long Term Government Deposits can be
opened for 5 -7 years and 12-15 years respectively. The Short Term Bank Deposit would be
accepted by individual banks on their own account. But the Medium and Long Term Government
Deposits would be accepted by banks on behalf of the Government of India based upon
notification issued by the Reserve Bank of India.

Gold Monetization Scheme Eligibility

All residents Indians can invest in this new Gold Monetization Scheme. 2015.

Key features of Gold Monetization Scheme

The Gold Monetization Scheme comes with the following features:

The scheme accepts a minimum deposit of 30gm of raw gold in the form of a bar, coin or
jewelry.
There is no maximum limit of investment under this scheme.
The scheme allows premature withdrawal after a minimum lock-in period. However, it
charges penalty for such withdrawals.
All designated commercial banks would be able to implement the Gold Monetization
Scheme in India.
The scheme would offer interest at 2.50% per year which is higher than previous rates
offered on gold investments.
 The short term deposits offered by Gold Monetization Scheme can be redeemed in either
gold or in rupees at current rates applicable at the time of redemption.
Benefits of investing in Gold Monetization Scheme

By investing gold in the Gold Monetization Scheme 2015, an investor can enjoy the following
benefits:

You would earn interest on your idle gold which would add value to your savings.
The scheme would benefit the country by reducing its gold import.
The schemes offers flexibility. You can withdraw your investment/gold as and when you
need it.
You can start your investment with as low as 30gm of gold.
A portion of the gold collected through the Gold Monetization Scheme can be sold or lent to
MMTC and RBI for minting of gold coins and sale. Thus, the gold deposited through this
scheme will be re-circulated in the country to help reduce gold imports. Gold being the most
precious asset of the country, the Government of India aims to use it for the purpose of nation
building and strengthen the countrys economy

FAQs

1. Does Gold Monetization Scheme 2015 allow withdrawal of investments?

Yes, the scheme allows withdrawal of your investments. You can withdraw your gold after
completing the minimum lock-in period.

2. What is the rate of interest offered by the Gold Monetization Scheme?

The rate of interest offered by the scheme ranges from 2.25% to 2.50% per year.

3. How many deposit schemes are available under the Gold Monetization Scheme?
Three deposits schemes are available under the Gold Monetization Scheme which include -
Short Term Bank Deposits (SRBD) and Medium and Long Term Government Deposits
(MLTGD).

4. What is the tenure of a Short Term Bank Deposits (SRBD)?

The tenure of a Short Term Bank Deposits is 1-3 years.

5. For how long can I invest in a Medium Deposit?

 You can invest in a Medium Deposit for a period of 5 to 7 years.

6. Can I invest in a Long Term Deposits for 14 years?

Yes, you can invest in a Long Term Deposit for 14 years. The Gold Monetization Scheme
offers Long Term Deposits for a period of 12 to 15 years.

https://www.bankbazaar.com/gold-rate/gold-monetization-scheme.html

https://www.bankbazaar.com/gold-rate/sovereign-gold-bond-scheme.html

What Indias Gold Monetization Program Means for You

India has around 20,000 tons of gold lying in households and temples. Thats the same weight as
around 3,300 adult elephants and, at Tuesdays prices, worth around $767 billion.

The government wants to unlock the earning potential of this domestic treasure trove and last
week announced draft rules for what it called a gold-monetization policy.

The bring-out-your-gold program aims to get owners to deposit their stash in the bank and earn
interest in order to help the country meet its demand for the yellow metal.
But its success will depend on incentives offered to depositors and banks to take part, analysts
caution.

Heres an overview of how the gold monetization plan is set to work and what it means for gold
owners.

Why does the government want my gold?

The idea is to tap into the countrys idle bullion by allowing owners to deposit their stocks with
banks to earn interest. The minimum deposit is 30 grams in the form of bullion or jewelry to earn
tax-free interest, under the draft rules. The mobilized metal might be loaned to jewelers by the
banks to make jewelry, in which case you wont get back the same metal you put in.

If the government is able to put the stockpiles of idle gold to use, it could help curb imports,
which currently stand at nearly 1,000 tons annually and reduce the countrys need for foreign
exchange reserves.
Whats the rate of interest?
The rate will be set by banks. But to attract depositors, the interest rates should be more than
4% to induce households to part with their gold, said Keyur Shah, head of the precious metals
division at Mumbai-based retailer Muthoot Pappachan.

Are there any restrictions on the type of gold?

It needs to be stripped of stones, melted and tested for purity before it can be deposited,
according to Mr. Shah of Muthoot Pappachan.

Depositors might also be asked to provide proof of ownership, he added. This could be tricky in
India where gold is mostly handed down from one generation to another. Most people would
opt out if banks ask for such evidence, he said.

Has the government tried this before?

Yes. But not with much success. Nomura, a Japanese brokerage, said the gold policy could be a
damp squib like its predecessor unless depositors get higher interest rates and banks exempt
them from regulations.

A similar program introduced by policymakers in 1999 failed to take off because of low interest
rates of 0.75% to 1% and a requirement to deposit a minimum of 500 grams, a quantity not many
middle-class Indian households can spare.

This time, the lower minimum gold deposit and tax exemptions could help attract more
depositors, Nomura said. But banks will need to keep the interest rates on gold deposits
higher to make it an attractive proposal.

When will we know the exact figures?

The draft guidelines were issued on May 19. The finance ministry has now sought public
feedback and comments on the draft rules by June 2.
The policy, once finalized, would be initially launched across selected cities since it requires
elaborate and competent infrastructure, according to the draft rules.

http://blogs.wsj.com/indiarealtime/2015/05/26/readers-rate-modis-first-year/
http://blogs.wsj.com/indiarealtime/tag/gold/

http://www.thehindu.com/business/all-you-need-to-know-about-gold-monetisation-
scheme/article7224428.ece

https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=10084&Mode=0

https://www.quora.com/How-does-the-gold-monetization-scheme-announced-in-the-Union-
Budget-2015-work-How-will-the-funds-be-handled-so-that-the-increase-in-gold-prices-does-not-
bring-a-huge-loss-to-the-government

http://www.mapsofindia.com/my-india/business/gold-monetisation-scheme-launched-in-india

http://www.hindustantimes.com/india/modi-launches-gold-monetisation-scheme-and-india-s-
first-ever-gold-coin/story-ZnvQejwF1FuAYK4l0SWGtI.html

http://www.thehindubusinessline.com/economy/budget/budget-2015-arun-jaitley-introduces-
gold-monetisation-scheme/article6945018.ece

http://profit.ndtv.com/news/industries/article-gold-monetization-scheme-heres-how-you-can-
earn-interest-on-your-jewellery-764334

http://economictimes.indiatimes.com/topic/Gold-Monetization-Scheme

http://articles.economictimes.indiatimes.com/2014-09-05/news/53601972_1_gold-deposit-mmtc-
pamp-india-high-gold-imports

http://www.simplifiedlaws.com/how-does-gold-monetization-scheme-work-is-it-really-useful-2/

http://www.nitinbhatia.in/views/5-benefits-of-gold-monetization-scheme/

5 Benefits of Gold Monetization Scheme

Recently GOI released the draft of Gold Monetization Scheme. The general public can share
their views on draft Gold Monetization Scheme on or before 2nd June, 2015. As usual my
financial planner friends passed their verdict on the Gold Monetization Scheme even before it is
launched. In fact, some of them also suggested whether to invest in this scheme or not. Whereas
other passed judgement whether the scheme will be a success or a failure. My dear friends forgot
that Govt has only released the draft of Gold Monetization Scheme. Based on the inputs from the
general public, banks and all other stakeholders the final scheme will be launched. The final
scheme may or may not retain the draft provisions. There is a possibility that final Gold
Monetization Scheme might be completely different from the draft. By passing their verdict at
the draft stage shows the immaturity and lack of understanding. Secondly, most of the financial
planners are passing wrong info to the General Public. They are also responsible for creating
wrong/negative perception about the Gold Monetization Scheme even before it is formally
launched.

At this stage, it is important to communicate the objective of Govt of India to launch Gold
Monetization Scheme. I am sure that if we will pass the right message then Indian Investor is
intelligent enough to decide whether to opt for Gold Monetization Scheme or not. Lets check
out the reasons, why Government of India is planning to launch Gold Monetization Scheme.
What are its implications on Indian Economy?

Gold is a Non-Productive Asset

As i highlighted in my post, Dream Home vs Gold Productive vs Non-Productive Asset that

Gold is a Non-Productive Asset. At best, Gold in a financial portfolio act as a hedge against
inflation. It should not be more than 15%-20% of the financial portfolio. According to rough
estimates, Indian household and other trusts are holding 20,000 tonnes of Gold. It is not a good
scenario for any economy. One of the objectives of a Gold Monetization Scheme is to unlock the
value of this non-productive asset. The unlocked value can be routed/circulated to productive
assets like Real Estate, Financial investments like Stocks, Debt, MF etc. For a healthy economy,
the contribution of non-tangible assets like financial investment should be at least 40%. Whereas
Indians believe in investments in tangible assets like Gold and Real Estate. Gold Monetization
Scheme will help to correct this skew through redemption option. Interest Payment option under
this scheme will be valued in gold. For example, if i open Gold Savings Account & deposit
100 gms gold. Assuming the interest rate is 2% then i will get 102 gms of gold at maturity.

Black Money and Gold Monetization Scheme

Its a known fact that Gold & Real Estate were safe havens to park Black Money. Gold
Monetization Scheme is a good way to unlock the black money parked in the form of a gold. As
the Gold returns are in negative territory therefore timing of the Gold Monetization Scheme is
strategic. Currently, hoarders are also finding ways to either exit or convert it into a sort of
productive asset.

Current Account Deficit

Depending on the success of Gold Scheme, it will increase the supply of Gold in the market.
Which in turn will reduce the import of Gold? Lower import of Gold will help to control the
current account deficit. Current account deficit is not good for the economic health of the
country. It means higher outflow of the dollar compared to dollar inflow from exports. Current
Account Deficit of last 2 years is 4.2% and 4.8% respectively. Indias major import bill is of
Gold and Crude Oil. If import > export then it increases the demand of dollar, therefore,
depreciates Indian Rupee. Depreciation of Indian Rupee will increase the inflation. Gold is a
hedge against inflation therefore in case of high inflation people will buy more gold. The
increase in Gold demand will further increase Current Account Deficit, therefore, its a vicious
cycle. To control this cycle, it is important to control the demand of gold.

Boost to Jewellery Sector

Currently, the big jewelers buy gold from gold importers or trading houses. Small jewelers buy
from big jewelers. Gold Monetization Scheme will facilitate the availability of gold through
banks on the loan. Gold will be treated as a Raw material for Jewellery sector. Thus, it will finish
the monopoly of gold importers. Secondly, if the jeweler will buy gold on loan from the bank
then it will slowly bring the stability in Gold Prices. Speculators will be out of business. Banks
can also convert the gold deposited under Gold Savings Account to Gold Coins and sell to their
customers.

Gold Prices will come down

If Gold Monetization Scheme is successful then there will be a sudden increase in the supply of
gold which in turn will decrease the Gold Price. Therefore, Gold Monetization Scheme is a good
news for people who are waiting to buy gold at the lower price provided the scheme is a success.
It has a flip side also. The drop in Gold price may result in out of proportion increase the demand
which will defeat the whole purpose of launching this scheme. Therefore, the government should
control the gold deposits in Gold Savings Account.

Conclusion: It will be interesting to note how the govt will handle the black money converted to
gold. Whether Gold Monetization Scheme will be sort of amnesty scheme for general public to
declare unaccounted gold lying in the lockers. Secondly, Gold is a Womens best friend and is
mostly in the form of jewellery. At the time of purchase, jewelers cheat and the final cost is
almost 20%-25% higher compared to the actual cost due to making charges, wastage etc. I
highlighted in my post, How Jewellers Cheat Customers. Therefore, it will be a double penalty if
the ornaments and jewellery will be deposited under Gold Savings Account as the investor will
receive only Gold Value.

You can submit your views on Gold Monetization Scheme at https://mygov.in/

Overall, its a good scheme from financial planning perspective. As it always advisable to hold
15%-20% of total portfolio value as a Gold. Gold ETF is much simpler, cost effective and
convenient way to hold gold compared to the physical jewellery/Gold Coins. You can read my
postWhy you should not buy Gold Coins from Banks? Among all form of gold, Gold ETF is
most suitable for investors.

http://www.relakhs.com/gold-deposit-scheme-govt-gold-bonds-monetisation/

http://www.briefindia.com/monetising-gold-a-study-in-india/

http://www.cppr.in/article/ambitious-government-aiming-for-realising-idle-gold/

http://www.careerride.com/view.aspx?id=21573

http://www.thehindu.com/opinion/columns/the-sum-of-three-new-gold-
schemes/article7869915.ece

http://www.financialexpress.com/personal-finance/gold-monetisation-bond-schemes-should-you-
investment/134598/
http://www.arthapedia.in/index.php?title=Gold_Monetisation_Scheme

http://www.planmoneytax.com/sbi-gold-deposit-scheme/

https://mises.org/blog/india%E2%80%99s-failing-gold-monetization-scheme-seizure-imminent

http://www.investopedia.com/terms/m/monetize.asp

http://www.business-standard.com/article/markets/why-is-the-gold-monetisation-scheme-not-
taking-off-116051600116_1.html

http://www.moneycontrol.com/news-topic/gold-monetization-scheme/

http://www.dnaindia.com/topic/gold-monetisation-scheme

http://www.firstpost.com/tag/gold-monetisation-scheme

http://zeenews.india.com/tags/gold-monetisation-scheme.html

http://www.indiainfoline.com/article/news-top-story/effective-gold-monetisation-schemes-the-
future-for-the-bullion-industry-114090200132_1.html

http://indianexpress.com/article/business/banking-and-finance/govt-for-ways-to-monetise-gold-
banks-want-gold-deposits-to-be-crr/

https://www.thequint.com/opinion/2015/09/10/gold-monetisation-and-spectrum-sharing-whats-
in-it-for-us

Significance of Gold: People buy gold for a variety of reasons such as for its auspicious
sentiment; as an investment (Gold continues to command long term value, a tag for being a safe
haven); hedge against inflation; asset allocation, etc. Gold also carries a high perceived value and
a high emotional quotient. It reinforces closeness of relationships. Gold coins in smaller
denominations are also considered apt for Corporate gifting and rewards for contests or for
commemorative giveaways.
 The Indian Consumers sentiment towards Gold: Many people think that Indians are gold
crazy. Though this statement cannot be completely negative, the truth is that Gold has always had
a special significance for all ages. The old adage - all that glitters is not gold, also in a way
underlines the importance accorded to Gold. Gold lends itself as a commemorative medium to
various engagements like golden anniversaries, golden jubilee, gold medals, gold credit card etc.
In India people buy gold anytime and not only during special occasions like weddings, festivals
or special events. Gold is also offered to Indian deities. The Indian Hindu calendar even has
auspicious days to buy gold like Dhanteras and Dassera. Gold is also bought on festivals like
Onam, Pongal and Durga Puja.
Though gold has several applications or uses the main reasons why Indians take to gold
are:
Gold is considered an equivalent for liquid cash: Gold is highly liquid and portable as a
Security or Asset. It can be converted to cash anytime when an emergency arises and is
considered a friend in need.
Gold is considered as a Status Symbol: Especially in India gold symbolizes wealth. In
Indian weddings the Gold brought by the bride shows her family's status and wealth. It is
believed that a bride wearing 24k gold on their wedding to bring luck and happiness throughout
the married life.
Gold is a very good investment: Gold is an asset which has consistently increased in
value and thereby considered as a safe and secure investment. In the last five years Gold has
delivered over 20% YOY return. It is considered an effective diversifier which helps to reduce
portfolio risk.
Gold is considered as gift item: It's precious and worthy across all cultures and times. The
gold jewelry is given as gifts during weddings, festivals and other special occasions.
Gold has great religious significance: Gold is the symbol of the Hindu Goddess Lakshmi
and considered highly auspicious. Gold is brought or presented on festivals like Dhanteras and
Akshaya Tritiya. Toe rings are never made of gold as it represents the goddess of wealth and
should not be soiled by touching a human's feet.
Great Ornamental Value: Who can resist gold ornaments? Women of every age and time
have always loved wearing gold ornaments. Moreover, Gold ornaments are never out of fashion.
 It also may be remembered that wedding rings are also traditionally made of gold to mark a long
lasting relationship.
Great value as Heirloom: Gold jewelry is something which can be passed down from one
generation to the other as ancestral property.This is why people say Gold is forever!
The importance of Akshaya Tritya: According to the Hindu Calendar, Akshaya Tritiya is a
very auspicious occasion for new beginnings. During this period, people enter into new business
ventures, make travel plans and also celebrate weddings. Buying gold is also a popular activity,
as it is the symbol of wealth and prosperity. Gold bars, coins and gold jewellery bought and worn
on Akshaya Tritiya signify never diminishing good fortune. During the period both banks and
jewellers promote gold sales aggressively, offering the best prices and discounts. Customer
demand during Akshaya Tritiya surges due to a belief that gold purchases go a long way in
securing the future.
Converting Crops into Gold

Because of the above-average monsoon, gold spending in India is expected to increase 11

percent in 2016/2017 over the previous September to August crop season, according to Thomson
Reuters. This would help reverse weak second-quarter jewelry demand in India due to a gold
jewelers strike that closed the market for six weeks early in the quarter, a new 1 percent excise
duty on jewelry and rising prices.

About a third of Indian gold demand comes from rural farmers, who have traditionally converted
a percentage of all crop revenue into the precious metal to be held as insurance and sold in times
of dire need. AGFMS/Thomson Reuters study conducted last year found that, between 1985 and
2014, there was a strong positive correlation between Indian crop revenue and spending on gold.
150 Million Indian Weddings Between Now and 2021?

The largest owners of gold in Indian are women, as it is auspicious to give them gifts of gold
jewelry before their weddings. Because India lacks a formal social security system, its vital for
women in particular to have some form of wealth preservation in the event of divorce or
widowhood. This is whats known as stridhana portion of a married couples wealth that is
controlled exclusively by the wife and to which she is entitled, even after separation from her
husband.

As World Gold Council CEO Aram Shishmanian put it during our joint webcast in June: In
India, a marriage is not a marriage without gold.

The new gold monetization scheme will offer an interest rate of up to 2.5 per cent and has a
minimum deposit level of 30 grams.
Gold Schemes May Help Imports Fall 5% in 12-18 Months: ICRA

Gold imports are likely to decline by up to 5 per cent over the next 12-18 months due to the
proposed launches of the Gold Bond Scheme (GBS) and the Gold Monetization Scheme (GMS),
rating agency ICRA said on Friday.

Press Trust of India | Last Updated: September 18, 2015 22:17 (IST)

Mumbai: Gold imports are likely to decline by up to 5 per cent over the next 12-18 months due
to the proposed launches of the Gold Bond Scheme (GBS) and the Gold Monetization Scheme
(GMS), rating agency ICRA said on Friday.

The overall impact of the GBS and GMS schemes is likely to be moderately positive on Indian
gold imports over the medium term with imports expected to decline by 3-5 per cent over the
next 12-18 months, the rating agency said in a report.

Recently, the government had approved implementation of the GBS and GMS to help reduce
imports of the yellow metal.

The GBS and GMS aim to curb investment demand for gold and also mobilize idle gold lying
with households.

"While we expect the GBS scheme to be relatively successful, the impact of GMS is likely to be
limited because of concerns regarding the operating modalities of the scheme," the report said.

It anticipates that the low interest rate expected to be on offer under the GMS is unlikely to
compensate for the loss of jewellery (financial cost) through melting, owing to the strong
emotional quotient attached to the shiny metal.

GBS, on the other hand, provides an alternative avenue for channeling investments into the
commodity in addition to generating some additional returns against direct investments into
exchange traded funds (ETFs) or gold bars, where returns are linked to price movements alone,
ICRA said.

Further on GMS, the collections under the scheme is likely to be modest as the sourcing is
expected to reach 10-15 tonnes (a fraction of the 20,000 tonnes of idle household gold) within 2-
3 years of launch, it added.

Demand for gold jewellery, after recording steady performance during the last quarter of fiscal
year 2015, moderated during first quarter of the current fiscal due to unfavourable weather
patterns and weak demand for wedding season during the recent quarter, the report said.

Demand remained stable throughout fiscal year 2015, expect second quarter of FY15 that
recorded surge in volumes supported by wedding and festive season and also easing of the
supply situation, ICRA said.

Over the near term, the agency expects improvement in demand environment - driven by the
impending marriage and festive seasons - which in addition to the aggressive store expansion by
organised retailers, will drive growth by about 3 per cent.

The jewellery industry in India, from an estimated Rs 2.2 trillion during 2014-15, is expected to
grow to Rs 2.3 trillion over the next two fiscal years, it added.

Over the long term, gold jewellery demand in India would be supported by cultural
underpinnings, evolving lifestyle, growing disposable income, especially in Tier III and rural
markets, which account for a major share of the demand and the growing penetration of the
organised sector.

ICRA said the domestic gold jewellery industry is likely to record robust growth of 6-8 per cent
over the medium to long term.
Prime Minister launches three gold related schemes viz. Gold Monetization Scheme, Sovereign
Gold Bond Scheme and India Gold Coins
Prime Minister launches three gold related schemes viz. Gold Monetization Scheme,
Sovereign Gold Bond Scheme and India Gold Coins

The Prime Minister, Shri Narendra Modi, launched three gold related schemes at a function here
today.

The schemes are Gold Monetization Scheme, Sovereign Gold Bond Scheme, and India Gold
Coins.

On the occasion, the Prime Minister Shri Narendra Modi described the schemes as an example of
"sone pe suhaaga" (icing on the cake). The Prime Minister said India has no reason to be
described as a poor country, as it has 20,000 tonnes of gold. He said the gold available with the
country should be put to productive use, and these schemes show us the way to achieve this goal.
At the launch, the Prime Minister said that gold can be a great tool for women empowerment and
that they would be the biggest beneficiaries of the new schemes. He further added that the reason
behind the success of these schemes will be the women of India. He also said that the gold bonds
will be more beneficial than physical gold.

Shri Narendra Modi described the launch of the India Gold Coins, bearing the Ashok Chakra, as
a matter of pride for the nation. He said people would no longer have to depend on foreign
minted gold bullion or coins. The Prime Minister also launched a website on these schemes

http://finmin.nic.in/swarnabharat, and distributed Certificates of Investment to six initial

investors.

Earlier, addressing the gathering, the Union Finance Minister Shri Arun Jaitley said that gold
lying with an individual can be a personal savings but it does not contribute in the development
of the country. He said that from now on, gold will not only be an instrument of security but will
also give earnings and will become part of nation building. Finance Minister Shri Jaitley further
said the import of gold will come down with the launch of these gold related three schemes
today.

He expressed hope that citizen would take advantage of these three schemes. The Union Minister
of State (I/c) for Commerce Smt. Nirmala Sitharaman and the Union Minister of State for
Finance Shri Jayant Sinha were present on the occasion among others.

NEW DELHI: P rime Minister Narendra Modi on Thursday launched three schemes to lure
tonnes of gold from households into the banking system and said that India is poor because gold
is lying idle .

The Gold Monetisation Scheme (GMS), 2015 will offer option to resident Indians to deposit
their precious metal and earn an interest of up to 2.5 per cent; while under the Sovereign Gold
Bonds Scheme, investors can earn an interest rate of 2.75 per cent per annum by buying paper
bonds.

Modi also unveiled the first ever Indian gold coin and bullion, bearing national emblem Ashok
Chakra on one side and Mahatma Gandhi's image engraved on the other side.

Initially the coins will be available in denominations of 5 and 10 grams. A 20 gram bullion will
also be available through 125 MMTC outlets.

Speaking on the occasion, Modi said India has surpassed China as the world's largest gold
consumer, buying 562 tonnes of yellow metal so far this year, against china's 548 tonnes.

"People should take advantage of the golden opportunity to help India march to a golden period,"
he said.

Observing that there is no reason for the country, which has 20,000 tonnes of gold lying idle with
households and institutions, to remain poor, he said, with some efforts and right policies India
can get rid of this tag of (poor nation).

Recalling India's tradition of savings and culture of empowering women with gold, he said in a
lighter vein, even the RBI governor Raghuram Rajan will have to recognise the difference
between "arthashastra (economics) and grahshastra (home economics)."

Various schemes launched on Thursday will increase the availability of gold and bring down its
import.

India currently imports around 1,000 tonnes of gold every year, leading to outflow of forex
reserves.

Speaking at the occasion, finance minister Arun Jaitley said that "it's essential to discourage gold
imports."

"Gold is a security, it gives you earning and now on it is going to be a part of our nation-
building," the FM added.

Previous attempts at mobilising this gold have been unsuccessful, but Prime Minister Narendra
Modi is hoping higher interest rates paid will help it to succeed this time.

"The government wants to reduce the reliance on gold imports over time," a finance ministry
official said.

Banks will collect gold for up to 15 years to auction them off or lend to jewellers from time to
time. They will pay 2.25-2.50 percent interest a year, higher than previous rates of around 1
percent.

But industry experts and bankers said many prospective depositors will not take up the scheme
due to concerns that the tax department could question the source of gold, while others may find
conventional bank deposit rates of 8 percent more attractive.
http://www.pradhanmantriyojana.org/2016/07/06/gold-monetization-scheme/

http://www.dreamgains.com/gold-monetization-scheme-is-worth-it/

The gold monetization scheme is the scheme launched by the central Government of India on 5th
November 2015 under the leadership of Prime Minister Shri Narendra Modi. The main objective
of the scheme is to reduce gold imports in India and mobilization of gold held by Households
and Institutions in the country. The scheme will help to save foreign exchange and deal with the
problem of current account deficit

Benefits of gold monetization scheme:

People who participated in the scheme, wealth tax, income tax and capital gains tax
exemption can be granted
The weight of gold remain same forever if you keep is in the house, But the GMS
increase the weight of the gold according to the given interest rate
Customer gold will be securely maintained by the bank
Customer will get the true value of his/her gold
This scheme provides benefit to Indian gems and jewelry sector
This scheme is divided into 3 term plan which are follows

Short term: 1 to 3 years

Medium term: 5 to 7 years
Long term: 12 to 15 years
Required eligibility and conditions for gold monetization scheme:
1. The scheme is introduced for all Indian resident
2. Joint deposits of two or more eligible depositors are also allowed under the scheme
3. Investor needs to deposit minimum 30 grams of gold to earn interest on deposit
Document required for the scheme:
1. Address proof e.g. Certificate from residence authority
2. ID proof e.g. Aadhaar card
 3. Passport size photograph
4. Gold saving bank account
http://cafemutual.com/news/industry/4873-no-capital-gains-tax-on-sovereign-gold-bond-scheme-
and-gold-monetization-scheme

http://www.mbauniverse.com/article/id/9632/Gold-Monetisation-Scheme

MUMBAI: Entities participating in Gold monetization Scheme can earn up to 2.50 per cent
interest rate on their idle gold.

Interest rate on Medium and Long Term Government Deposit (MLTGD) are 2.25 per cent and
2.20 per cent, respectively, according to a notification issued by RBI today.

The tenor of medium term would be between 5-7 years while long term would for 12-15 years
tenure.

The deposit under MLTGD category will be accepted by the designated banks on behalf of the
central government.

The receipts issued by the Collection and Purity Testing Centre (CPTC) and the deposit
certificate issued by the designated banks shall state this clearly.

The government had in September cleared the gold monetization scheme aimed at tapping part of
an estimated 20,000 tonnes of idle gold worth about Rs 5,40,000 crore into the banking system.

The gold received under MLTGD will be auctioned by the agencies notified by the government
and the sale proceeds will be credited to government's account held with RBI, it said.
 Reserve Bank of India will maintain the Gold Deposit Accounts denominated in gold in the name
of the designated banks that will in turn hold sub-accounts of individual depositors, it added.

http://www.mydailylifetips.com/gold-monetization-scheme-sbi-interest-rate-bank-details/

http://currentaffairs.gktoday.in/union-government-launches-gold-schemes-11201527979.html

http://www.holisticinvestment.in/7-Things-to-know-about-The-Gold-Monetization-Scheme/

http://www.newsbytesapp.com/timeline/Economy/1335/7919/gold-monetization-scheme-to-
become-more-fetching

JANUARY 17, 2016 BY ECONOMICS CLUB IMI

Gold Monetization Scheme: Mobilizing Idle Gold

Observing that there is no reason for the country, which has 20,000 tonnes of gold lying idle
with households and institutions, to remain poor, with some efforts and right policies India
can get rid of this tag of poor nation.

PM Narendra Modi on Gold Monetization Scheme

India is the largest importer of gold comprising 20% of world imports. Around 700-900 tonnes of
gold is imported every year by India. This accounts for a significant portion of physical demand.
In India gold is consumed for two purposes:

1. For making jewelry

2. Holding gold by investors as a capital good for a variety of reasons such as a store of
value, a hedge against inflation and currency fluctuations, as an insurance against uncertainty
and tail risks

This idle gold is profitable neither to the economy nor to the individual. Instead the consumer
incurs a carrying cost in the form of bank locker where he is charged for storing the gold. So in
 order to mobilize the gold which is lying idle with the households and institutions in the country,
Government came up with a scheme of Gold Monetization Scheme which gives fixed returns.
The returns are given as fixed interest to the person for the gold deposited by him in the Gold
Savings Account. The gold which is deposited is accepted in any physical form jewelry, coins
or bars. The customer will have the option of redemption either in cash or in gold, which will
have to be exercised in the beginning itself (that is, at the time of making the deposit). The
minimum quantity of gold that a customer can bring is proposed to be set at 30 grams which
encourages even small depositors.

Objectives:

The objectives of the Gold Monetization scheme are:

1. To mobilize the gold held by households and institutions in the country.

2. To provide a fillip to the gems and jewelry sector in the country by making gold available
as raw material on loan from the banks.

3. To be able to reduce reliance on import of gold over time to meet the domestic demand.
 Figure-1: Functioning of Gold Monetization Scheme

Gold Mobilization Operation: This is the front end operation which explains the procedure of
how customer opens a Gold Saving Account and deposits gold.

Initially the gold which is ought to be deposited is taken to hallmark centers which are
currently 350 in number to conduct a preliminary XRF machine test to know the amount of pure
gold

Once the result is obtained the customer will decide whether to deposit or not

After taking the consent of the customer the gold deposited is melted in fire assay centers
removing the impurities
 The final gold which is obtained in the form of bars is weighed and once again the
consent of the customer is taken for depositing the resultant gold

If the customer is not willing to deposit, he is free to take back his gold after paying
certain nominal fee to the center

Otherwise a certificate is given by the collection center certifying the amount and purity
of the deposited gold

Finally a customer fills a KYC form and deposits the gold in the Gold Savings Account

The tenure of the deposit will be minimum 1 year and with a roll out in multiples of one
year. Like a fixed deposit, breaking of lock in period will be allowed.

Gold Lending Operation: The deposited gold is utilized in various ways by the banks to
achieve its objectives along with earning the fixed returns that should be given to the depositors

Banks will enter into a tripartite (three party) MoU with refiners and purity testing centers
that are selected by them to be their partners in the scheme

This MoU consists details regarding payment of fee, services to be provided, standards of
service and the details of the arrangements between the banks, refiners and purity testing centers

The deposited gold is sent to refineries for storing in warehouse unless banks prefer to
hold themselves

Banks can deposit this gold as a part of their CRR/SLR with RBI

Banks can generate foreign currency by selling this gold in foreign countries which
improves BoP of the country

Bank may convert mobilized gold into coins for onward sale to their customers or to buy
and sell on domestic commodity exchanges, where mobilized gold can be delivered
 Jewelers can take gold as a loan from banks through Gold Loan Account, and the bank
will earn interest on these loans and Jewelers will repay the loan in cash

Benefits to the Economy

GMS implementation will have multiple benefits for the Indian economy. It will increase supply
of gold in the economy, which avoids the need for importing the gold. This in turn reduces the
Current Account Deficit (CAD). Currently small jewelers are buying gold from large jewelers.
GMS will facilitate the availability of gold through banks on the loan curbing
Monopoly. Moreover as GMS makes gold available to jeweler on loan from bank, this will result
in stability in gold prices.

Benefits to the Customer

After GMS implementation the customer will get affixed returns on the gold he deposited along
with the appreciation of the value without any risk factor. Gold will be maintained safely by the
bank. There will be further earning opportunity as the redemption is possible in physical gold or
rupees. After due examination the customers of GMS will get tax exemptions from Capital Gains
Tax, Wealth tax and Income Tax on the earnings as well as on the value appreciation for the gold
deposited.

Challenges Faced By the Government

Although GMS was beneficial to the Economy as well as holders of Gold. It involves certain
challenges to overcome for a successful implantation. The process of depositing the Gold takes
around 10 hours of time which is very tedious. Consumers have to go to hallmarking centers
before depositing, which they are not familiar with, or which are not easily accessible. there is a
lack of awareness about GMS which has resulted in a skepticism about the scheme in
customers. Customers are also worried at queries on the source of the jewelry. The Government
needs to address these queries and instill faith in the mind of the consumers.

The Road Ahead

The Government is taking measures to overcome the barriers in order to make
headwinds. Indian Bullion and Jewelers Association have made a proposal to tie up with
member jeweler network which make hallmarking centers easily accessible to the
customers. Family jewelers can act as agents to create awareness about this scheme in the
people. Following a policy of quoting PAN number for buying jewelers above Rs 2 Lakhs which
curbs the usage of unaccounted money to buy gold. The initiative if implemented well can be the
one to watch out for as it would not only benefit the owners of gold but, can help the Indian
economy as well in a big way.

https://economicsclubimi.wordpress.com/2016/01/17/gold-monetization-scheme/

Planning to invest into gold monetization scheme ?

Indias finance minister announced the launch of the gold monetization scheme in the annual
budget of 2015 16. The Prime Minister also made an official announcement recently that the
scheme will be operational by the end of this year.

The main intent behind the introduction of this scheme is to help the general populace make use
of idle gold lying in their homes and bring it into the mainstream economy of the nation. The
current government is going great lengths to encourage people to invest their unused gold into
this scheme. One can do so by opening a metal account in his/her bank and depositing the gold
into it. Upon doing so, one will earn regular interest on the gold deposit.

However, there are 7 important points that anyone wanting to invest into this scheme should be
aware of. They are:

The interest rate involved Authorities are yet to provide clarity on the exact interest rate that
such gold deposits will fetch. However, financial analysts believe that this interest rate will be
well below the 3% mark and the banking establishments will have the freedom to determine their
own rates.

The tenure of gold deposits Youd be able to deposit gold into your metal account for the
long-term, medium term and short term periods. These terms will be 12 to 15 years, 5 to 7 years
and 1 to 3 years respectively.
Minimum deposit quantity As government is pretty aggressive on the gold monetization
scheme, people will be allowed to invest even the tiniest quantity of gold to enroll themselves
into this scheme. Nevertheless, the government has kept 30 gm mark as the minimum deposit
quantity for the scheme. Just like theres a minimum quantity, there is a cap on the maximum
quantity too. Youll not be allowed to deposit anything over 500 gm of gold via this scheme.

About joint depositsThe current provisions related to the joint bank accounts will apply to the
metal accounts too. So, youll be able to make joint gold deposits into a joint metal account if
you wish.

About premature withdrawals Although the gold monetization scheme will feature a maturity
period and a lock in period, therell be provisions for premature withdrawals in case of
emergencies. Any such withdrawals would attract penalties as set forth by the banking
establishments.

Required gold standards The government has prescribed different gold testing centres for this
scheme, thatll check the purity of gold and provide appropriate certificates for the same. So,
anyone interested in depositing gold into his/her metal account would need to obtain a purity
certificate from one of these government authorised testing facilities.

About redemption Itll be up to the depositor whether he/she wishes to redeem his/her gold
deposit in the form of bank notes or in the form of real gold upon the maturity of his/her deposit.
Please note, once made, this choice will not be allowed to change in the future.

Introduction of Gold Monetization Schemes

The Union Cabinet chaired by the Prime Minister, Shri Narendra Modi, today gave its approval
for introduction of Gold Monetization Schemes (GMS), as announced in the Union Budget 2015-
16.
The objective of introducing the modifications in the schemes is to make the existing schemes
more effective and to broaden the ambit of the existing schemes from merely mobilizing gold
held by households and institutions in the country to putting this gold into productive use. The
long-term objective which is sought through this arrangement is to reduce the countrys reliance
on the import of gold to meet domestic demand.
GMS would benefit the Indian gems and jewellery sector which is a major contributor to Indias
exports. In fiscal year 2014-15, gems and jewellery constituted 12 per cent of Indias total
exports and the value of gold items alone was more than $13 billion (provisional figures).
The mobilized gold will also supplement RBIs gold reserves and will help in reducing the
governments borrowing cost.
The revamped Gold Deposit Scheme (GDS) and the Gold Metal Loan (GML) Scheme involves
changes in the scheme guidelines only. The risk of gold price changes will be borne by the Gold
Reserve Fund that is being created. The benefit to the Government is in terms of reduction in the
cost of borrowing, which will be transferred to the Gold Reserve Fund.
The scheme will help in mobilizing the large amount of gold lying as an idle asset with
households, trusts and various institutions in India and will provide a fillip to the gems and
jewellery sector. Over the course of time this is also expected to reduce the countrys dependence
on the import of gold. The new scheme consists of the revamped GDS and a revamped GML
Scheme.
Revamped Gold Deposit Scheme
Collection, Purity Verification and Deposit of Gold under the revamped GDS:-
Out of the 331 Assaying and Hallmarking Centres spread across various parts of the country,
those which will meet criteria as specified by Bureau of Indian Standards (BIS) will be allowed
to act as Collection and Purity Testing 1 Centres for purity of gold for the purpose of this
scheme. The minimum quantity of gold that a customer can bring is proposed to be set at 30
grains. Gold can be in any form (bullion or jewellery). The number of these centres is expected
to increase with time.
Gold Savings Account:-
In the revamped scheme, a Gold Savings Account will be opened by customers at any time, with
KYC norms, as applicable. This account would be denominated in grams of gold.
Transfer of Gold to Refiners:-
Collection and purity testing centres will send the gold to the refiners. The refiners will keep the
gold in their ware-houses, unless banks prefer to hold it themselves. For the services provided by
the refiners, they will be paid a fee by the banks, as decided by them, mutually. The customer
will not be charged.
The banks will enter into a tripartite Legal Agreement with refiners and Collection and Purity
Testing Centres that are selected by them to be their partners in the scheme.
Tenure:-
The deposits under the revamped scheme can be made for a short-term period of 1-3 years (with
a roll out in multiples of one year); a medium-term period of 5-7 years and a long-term period, of
12-15 years (as decided from time to time). Like a fixed deposit, breaking of lock-in period will
be allowed in either of the options and there would be a penalty on premature redemption
(including part withdrawal).
Interest rate:-
The amount of interest rate payable for deposits made for the short-term period would be decided
by banks on basis of prevailing international lease rates, other costs, market conditions etc. and
will be denominated in grams of gold. For the medium and long-term deposits, the rate of
interest (and fees to be paid to the bank for their services) will be decided by the government, in
consultation with the RBI from time to time. The interest rate for the medium and long-term
deposits will be denominated and payable in rupees, based on the value of gold deposited.
Redemption:-
For short-term deposits, the customer will have the option of redemption, for the principal
deposit and interest earned, either in cash (in equivalent rupees of the weight of deposited gold at
the prices prevailing at the time of redemption) or in gold (of the same weight of gold as
deposited), which will have to be exercised at the time of making the deposit. In case the
customer will like to change the option, it will be allowed at the banks discretion. Redemption
of fractional quantity (for which a standard gold bar/coin is not available) would be paid in cash.
For medium and long-term deposits, redemption will be only in cash, in equivalent rupees of the
weight of the deposited gold at the prices prevailing at the time of redemption. The interest
earned will however be based on the value of gold at the deposit on the interest rate as decided.
Utilization:-
The deposited gold will be utilized in the following ways:-
(1). Under medium and long-term deposit:
(i). Auctioning.
(ii). Replenishment of RBIs Gold Reserves.
(iii). Coins.
(iv). Lending to jewellers.
(2). Under short-term deposit:
(i). Coins.
(ii). Lending to jewellers.
(3). Tax Exemption: Tax exemptions, same as those available under GDS would be made
available to customers, in the revamped GDS, as applicable.
(4). Gold Reserve Fund: The difference between the current borrowing cost for the Government
and the interest rate paid by the Government under the medium/long term deposit will be
credited to the Gold Reserve Fund.
(5). Revamped Gold Metal Loan Scheme.
(6). Gold Metal Loan Account: A Gold Metal Loan Account, denominated in grams of gold,
will be opened by the bank for jewellers. The gold mobilized through the revamped GDS, under
the short-term option, will be provided to jewellers on loan, on the basis of the terms and
conditions set-out by banks, under the guidance of RBI.
(7). Delivery of gold to jewellers: When a gold loan is sanctioned, the jewellers will receive
physical delivery of gold from refiners. The banks will, in turn, make the requisite entry in the
jewellers Gold Loan Account. Interest received by banks: The interest rate charged on the GML
will be decided by banks, with guidance from the RBI.
(8). Tenor: The tenor of the GML at present is 180 days. Given that the minimum lock-in period
for gold deposits will be one year, based on experience gained, this tenor of GML may be re-
examined in future and appropriate modifications made, if required.

Salient Features of the Gold Monetization Scheme.

Gold has unique properties as an asset class. Modest allocations to gold of 2 per cent to 10 per
cent can protect and enhance the performance of an investment.It is apt to say that India is a
nation of households obsessed with gold. According to rough estimates, Indian households and
other trusts, including both religious and charitable ones, are holding 20,000 tonnes of gold. It is
not a good scenario for a good economy.

One of the objectives of Gold Monetization Scheme is to unlock the value of non-productive
asset. Gold Monetization Scheme is a good way to unlock the black money parked in the form
of gold. Currently, hoarders are finding ways to either exit or convert it into a sort of productive
asset.

If Gold Monetization Scheme is successful then there will be sudden increase in the supply of
gold, which in turn will decrease the Gold Price. Therefore, Gold Monetization Scheme is good
news for people who are waiting to buy gold at the lower prices provided the scheme is
successful. However, the drop in Gold Price may result in an increase in the demand, which will
defeat the whole purpose of launching the scheme. Therefore, the government should control the
gold deposits in Gold Savings Account.

The Reserve Bank of India issued directions to thebanks on implementation of the gold scheme
approved by the government with the objective of monetizing Indias massive private holding of
the precious metal. Gold Monetization is a wonderful concept of monetizing domestic idle gold
and brings it to the use of the industry to help reduce imports.

The government announced the gold monetization scheme on 15th September 2015 to mobilise
gold held by households and institutions and facilitate its use for productive purposes and in the
end to reduce Indias reliance on the import of gold. This scheme will help in mobilising the
large the amount of gold lying as an idle asset with households, trusts and various institutions in
India and will provide a fillip to the gems and jewellery sector. Over the course of time, this will
help in reducing the countrys dependence on the goldimports.

BOOST TO JEWELLERY SECTOR

Currently, the big jewellers buy gold from gold importers or trading houses. Small jewellers buy
from big jewellers. This scheme will facilitate the availability of gold through banks on the
loanas the raw material for jewellery sector. Thus, it will finish the monopoly of gold importers.
In addition, if the jeweller buys the gold on loan from bank then it will slowly bring the stability
in Gold Prices. Speculators will be out of business. Banks can convert the gold deposited under
Gold Savings Account to Gold coins and sell to their customers.

ELIGIBILITY
Any Resident Indian of the following categories-

Individuals singly or jointly(as former or survivor).

Hindu Undivided Families (HUFs).

MINIMUM DEPOSIT

The minimum quantity of deposit that can bekeptis of 30 grams to encourage even small
depositors. It is different from the earlier existingGold Deposit Schemes (1999), where
minimum requirement was500 grams. The customer will have to choose an option of
redemption either in cash or gold. This option needs to be mentioned at the time of making
the deposit.

PLACE OF DEPOSIT

Gold Monetization will beinitially launched at few locations because the government will have
to first set up the infrastructure for facilitating easy and secure handling of gold.

TAX FREE

Gold Monetization Scheme is proposed to be tax free-

No Income tax on the interest earned on Gold Account.

No Capital Gain tax on the appreciation in the value of gold.

No Wealth tax.

INTEREST RATE

Interest rate havetobe decided by the bank.

 Consumers will be paid interest on their gold saving account after 30/60 days of account
opening.

Interest will be credited in Gold terms. For example,if you deposit 100 gram of gold and
interest rate is 1% then 1 gram gold is credited to your account as interest.
TENURE

The tenure of gold deposit is likely for a minimum of one year and in multiples of one year.
Premature breaking may be allowed.Investors are offered following three types of deposit or
tenure options as a part of this gold monetization scheme-

Short-term tenure- Matures between 1-3 years.

Medium term tenure- Matures between 5-7 years.

Long-term tenure- Matures between 12-15 years.

REDEMPTION

Customer will have the choice to take cash or gold on redemption but the preference has
to be stated at the time of deposit.

CALCULATION OF INTEREST RATE

Both principal and interest are to be paid to the depositors of gold and it will be valued in
gold. The interest rate will be decided by the bank.

LOAN FACILITY

Rupee loans available at any branch of SBI up to 75% of the notional value of gold.

RENEWAL

It can be renewed any time after maturity period provided the renewal be for a future period for
the term and interest rate as available on the date of maturity.
It can be summarised that although the scheme has its own loopholes and uncertainties attached
to it, it is worth reiterating that the cultural nuances attached to gold in India will always mean
that such schemes will manage a moderate success. It may not attract much attention in the
beginning, but it surely has the potential to induce Indian minds to consider gold as an
investment option in near future.

http://www.allonmoney.com/investments/gold-monetization-scheme/

http://www.allonmoney.com/investments/gold-coin-scheme/

http://www.allonmoney.com/investments/sovereign-gold-bond-scheme/

https://www.kotakmoneywatch.com/index.php/article/979-what-is-the-gold-monetisation-
scheme

http://www.iasscore.in/economy-details-411.html

Gold Monetization Scheme How much do you Know about it?

On Tuesday, 19th of May 2015 the government released a draft notification containing all the
guidelines. This scheme was announced during the Union Budget 2015. The Gold Monetization
scheme is to be implemented for the sake for reducing the gold import pressure. As this
particular scheme is new, there are various doubts and questions in the minds of citizens. This
article has been aimed to address all aspects of this ambitious scheme.

This new gold monetization scheme will replace the 1999 gold deposit scheme and gold metal
loan scheme. Both of these schemes were not popular and people showed minimal interest. It
would be interesting to see how people respond to this new scheme.

Gold Monetization Scheme Complete Details How will it Work,Application,

Interest Rate, benefits & Other Details

India is one of the top importer of gold in the world. Around 1K Tonnes of gold is imported
every year. This high import of gold adds to financial burden as well as forces the govt to levy
high import duties. Considering this, the government wanted to covert the countrys gold holding
into cash. This task is not that much easy as it sounds. As per the Gold monetization Scheme
draft, this scheme would enable the participation of depositors such as households, jewelers to
open gold savings account in respective banks. This way gold holdings of the individuals will be
placed with banks.

How will Gold Monetization Scheme Work

Once the households and jewelers will place their gold holdings with a bank, the bank will pay
interest. The bank will then lend this gold to jewelers who require it.Such jewelers have to pay
interest to the bank.

This whole process is very similar to the normal banking process where people deposit money
and receive interest from banks. The banks then use that collected money to provide loans to the
needy. Banks in turn receive interest on the loan. In case of gold monetization scheme, the asset
would be gold not money.

Joining the Gold Monetization Scheme How to Apply

Stage 1 Preliminary Test

Interested households or jewelers will deposit their gold. Using a preliminary XRF
machine test, the customer will be informed about the approximate amount of pure gold.
If customer is satisfied with the test, he needs to fill a KYC form and give his consent of
melting gold.

Note : If the customers is not satisfied with the gold purity tests, he is free to take his jewelry
back

Stage 2 Fire Assay Test

Once the customers agrees to melt the gold, a further test of purity will be conducted. In this test
dirt, studs, meena will cleaned. The studs will be handed over to the customer there itself. The
net weight of the gold after the removal will be told to the customer. After this the gold will be
melted in front of the customer and its purity will be ascertained through a fire assay.
Stage 3 Depositing the Gold

After the preliminary and Fire Essay test, the results will be told to the customer. At this
very stage also, if customer is not satisfied with the results, he can take back the gold in
the form of gold bars by paying a nominal fee to that center.
If customer is satisfied with the results, he will be given a certificate by the collection
center which will contain the amount and purity information of the gold.

Acceptable Minimum Quantity of Gold

To encourage even the small depositors across the country, the minimum quantity has
been proposed to set as 30 grams
Gold in any form i.e. Bullion or Jewelry will be accepted

Schedule of Fees :

1) Melting charges :

1. a) Minimum charges/upto 100 gms R 500 per lot

b) 100 gms to 200 gms Rs. 600

c) 200 gms to 300 gms Rs. 700

d) 300 gms to 400 gms Rs. 800

e) 400 gms to 500 gms Rs. 900

f) 500 gms to 600 gms Rs.1000

g) 600 gms to 700 gms Rs. 1100

h) 700 gms to 800 gms Rs.1200

i) 800 gms to 900 gms Rs.1300

j) 900 gms to 1000 gms Rs.1400

2) Testing/fire assaying charges Rs. 300

3) Stone removal charges at actuals

Minimum charge Rs. 100

Opening of Gold Saving Bank Accounts under the Monetization of Gold Scheme

Stage 4

After the customer will produce the certificate(obtained as stage 3) at the bank, the bank
in turn will open a Gold Savings Account for the customer. The quantity of gold will be
credited in the account of the customer.

Benefits to the Customers

The banks will commit to pay interest to the customer. The interest will be payable after 30/60
days. The very important aspect to attract the customer i.e. the interest rate will be decided by the
banks themselves. It is to be noted that the principal and interest to paid will be valued in gold.

Example

If any customer has deposited 100 gm of gold and bank is offering 5 percent of interest rate, then
on the maturity the individual will have credit of 102 gms

Costumer will have the option of redemption. it can be either in cash or in gold.

The minimum tenure of the deposit will be 1 year and will roll out in multiple years. Similar to a
Fixed deposit,breaking of lock in period is allowed

Utilization of Collected Gold

The government has planned to utilize the so collected gold as

 1. CRR/SLR
2. Coins
3. Lending to Jewelers
4. Exchanges
5. Foreign Currency

Conclusion Gold Monetization Scheme is yet to be implemented, however the draft of the
scheme educates about its application. It seems like it is great step ahead and will ultimately help
the government to get rid of Gold Import in the coming times. However, the deciding point will
be the participation of the people.

http://www.pradhanmantriyojana.in/gold-monetization-scheme-complete-details/

Day: August 2, 2016

Gold Bond Schemes

Sovereign Gold Bond Scheme

What are sovereign gold bonds?

Under the Sovereign Gold Bond Scheme, instead of buying gold in physical form investors can
park their money in bonds which are backed by gold. The bonds will be available both in demat
and paper form. These bonds will be issued in denominations of 2, 5, 10, 50 and 100 grams of
gold or other denominations.

Sovereign Gold Bond has more or equal advantage against the physical gold. The bond will be
issued by RBI on behalf of the Government of India. The bond would be restricted for sale to
resident Indian entities and the maximum allowable limit is 500 grams per person per year.

What is the tenure and interest rate?

The government will issue bonds with an appropriate rate of interest and which shall be payable
in terms of grams of gold. Banks/NBFCs/Post offices may be authorized to transact on these
bonds on behalf of the Government for a fee. The bonds will be available in various
denominations and the minimum tenor of the bond could be around 5 to 7 years.

How the redemption takes place?

On maturity, the redemption will be in rupee amount only. The rate of interest on the bonds will
be calculated on the value of the gold at the time of investment. The principal amount of
investment, which is denominated in grams of gold, will be redeemed at the price of gold at that
time. If the price of gold has fallen from the time that the investment was made, or for any other
reason, the depositor will be given an option to roll over the bond for three or more years.

What is the Tax benefits?

The tax on the gold bonds would be similar to that of physical gold. It can be used as a collateral
for loans. This is available only for resident Indians. The authenticity factor is what is most
beneficial in this scheme.

A person investing in the bond would not have to worry about the quality of the gold like in the
case when he or she purchases it from the jeweler. In the case of this bond the counterparty is the
government of India.
Gold Monetization Scheme

What is gold monetization scheme?

It is a scheme that facilitates the depositors of gold to earn interest on their metal accounts. Once
the gold is deposited in metal account, it will start earning interest on the same.

How it generally works?

When a customer brings in gold to the counter of specified agency or bank, the purity of gold is
determined and exact quantity of gold is credited in the metal account. Customers may be asked
to complete KYC (know-your-customer) process. The deposited gold will be lent by banks to
jewellers at an interest rate little higher than the interest paid to customer.
How is the interest rate calculated?

Both principal and interest to be paid to the depositors of gold, will be valued in gold. For
example if a customer deposits 100 gm of gold and gets one per cent interest, then, on maturity
he has a credit of 101 gram.

The interest rate is decided by the banks concerned.

How is the interest to be paid?

A person or entity can earn interest in either cash or gold units, by depositing the precious
metal with the banks. Interest payable after 30/60 days of opening of the account.

What is the tenure?

The tenure of gold deposits is likely to be for a minimum of one year. The minimum quantity of
deposits is pegged at 30 gram to encourage even small deposits. The gold can be in any form,
bullion or jewellery.

How the redemption takes place?

Customer will have the choice to take cash or gold on redemption, but the preference has to be
stated at the time of deposit.

http://maxchange.in/blog/2016/08/02/

http://maxchange.in/blog/2016/08/02/

http://www.gettingyourich.com/blog/-all-about-gold-monetization-scheme

How gold monetization scheme affects you

Its no secret that Indians are crazy about gold. One of the biggest importers of the yellow metal,
Indian households hold more than 20,000 tonnes of gold, according to media reports. To utilize
such a huge untapped resource, finance minister Arun Jaitley announced a gold monetization
scheme in this years Union Budget.

As per the scheme, you will open a metal account with a bank in return for depositing your gold.
The scheme also helps in converting gold into cash. The scheme also helps in converting gold
into cash. The long-term goal of the scheme is to utilize the untapped household gold for
productive purposes. This is expected to boost investments and demand in the economy.

The government released the draft guidelines for the gold monetization scheme on Tuesday.
Once finalized, here are five ways the scheme could affect you:

1) Earn Interest: Indians hold gold as a tool against inflation. However, you cannot earn
interest on the gold you hold. The scheme will help you earn this interest on the gold you have
deposited in the bank. This will, thus, turn your gold into a secured financial asset. The metal
account will just work like a normal fixed deposit. A minimum of 30 grams of gold must be
deposited in a bank account.

Imagine you have Rs 10,000 in your deposit and earn 8% interest. So, you will earn Rs 80 as
interest. Similarly, if you have gold worth Rs 10,000 in your metal account which promises an
interest of 8%, then you will earn Rs 80 as interest.

Just like a 1-year fixed deposit, the metal account will have a tenure of one year. So, during this
period, you will not be able to withdraw the gold. The tenure can be extended every year. At the
end of the tenure, you can redeem the interest and the principal either in gold or cash. If you
choose to redeem your deposit in cash, then the value of your deposit will be measured as per the
new price of the gold. So, if the price of gold has risen by then, you can also benefit the rise in
value of your investments.

2) Save Tax: The guidelines make it clear that the government wont tax your gold deposits.
No capital gains tax, wealth tax or income tax would be levied on the interest that you will
receive or when the value of the gold appreciates. Imagine you want to sell a part of your gold
holdings to enjoy capital appreciation and book profits. Capital appreciation will take place when
the value of your gold is higher than when you had bought it. You would go to a jeweler and sell
them. However, this will attract capital gains tax on them. With a gold deposit you can keep that
gold in a bank deposit and instead earn interest on them. No tax will be imposed even when your
gold deposit may appreciate at the end of tenure.

3) Increase Your Asset: As said earlier, you would have the option to redeem your deposit
either in cash or in gold. If you choose to redeem your deposit in gold then there will be an
increase in the amount of gold you hold in the bank. Imagine you hold 100 grams of gold in a
bank that pays you 2% interest. You will receive 102 grams of gold when the tenure of the
deposit ends. In this manner, just keeping your gold in a bank account will help you secure two
additional grams of gold.

4) Original ornaments melted: Once you deposit your gold ornaments, with your
permission, the bank will test the gold for its purity. It will then melt the gold so that all the
deposits are stored in a standard way. As a result, on maturity of the deposit, you may not get the
gold in its original form. You could very well receive gold in the form of bars. This also allows
the bank to use the gold for other purposes like lending to jewelers and so on.

5) Low Interest rate: When the scheme comes into effect, it is quite likely that you may not
get a high rate of interest on your deposit. This is because gold is generally leased at a rate of 3 to
5%, as per a Livemint report. Banks earn profit by paying interest at a lower rate to depositors
while charging a higher interest rate on loans. The difference between the two rates is the banks
profit. Banks usually prefer to keep a margin of 1-2% between these two interest rates. If the
same leasing rates are maintained, then banks may not have the room to pay high rates of
interest.
Gold Monetization scheme earn tax free interest on your gold deposits

As proposed by Honble Finance Minister Mr Arun jaitley in his Budget speech 2015, the Draft
guidelines of Gold Monetisation scheme has been announced. As it is in draft stage for now, so
stakeholders have been advised to submit their opinions and comments before June 215 to give
it a final shape. But on the face of it, it looks interesting, especially for physical gold Investors.

The purpose behind this gold monetization scheme is to mobilize the physical gold held by
households and Institutions of the country, which can be provided as raw material to jewelers
under loan scheme. This structure will reduce the reliance on gold imports, which in turn helps in
improving the current account deficit of the country.
On personal finance front it provides an opportunity to earn interest on the idle physical gold
lying in lockers.

How the Gold Monetization scheme will work?

In simple terms, it works like normal banking transactions. You hand over the gold to banks,
which in turn lend gold to jewelers. You will earn interest on the gold deposits and Jewellers will
pay interest on gold loans. Banks will manage the complete show under regulatory supervision
and earns in the structure.

Besides lending to jewelers, banks may get permission to use these gold deposits as part of the
CRR/SLR requirements. Banks may sell the gold to generate foreign currency which may be
used in foreign exchange lending. Banks may also convert the gold deposits into coins for
onwards selling to customers.

Such scheme was also announced lately in 1999, as gold deposit scheme 1999, but that time it
could not gain that popularity. In 2013 also RBI announced some guidelines on this structure, but
till now only SBI has such kind of Gold Deposit scheme in its product kitty.

What would the process in Gold monetization scheme?

This scheme requires a vast infrastructure set up, so to start with it may be available in few
locations only. The process will work like as below:

Customer will visit the designated Hallmark centers which are Bureau of Indian Standards (BIS)
certified. These centers will act as Purity Testing centers for this scheme. These centers will first
conduct one XRF machine test and tell customer approximate amount of pure gold in the
jewellery or coin or whatever it is. If customer agrees to proceed then he will have to fill up Bank
/KYC form and give consent for melting the gold.

After receiving customers consent for melting the gold, ornaments will go through a Fire assay
test after cleaning off the dirt, studs, meena etc. When the results of fire assay are told to the
customer as to the net quantity of pure gold, he has option to take back the melted gold by paying
the nominal fee to the center or he may agree to deposit the gold with bank. If he agrees to
deposit the gold then hell be issued one certificate certifying the amount and purity of gold
deposited.

Customer will take this certificate to the bank and bank will open a Gold Deposit account in
his name by crediting the quantity of gold in customers account.

Source: Draft guidelines- gold monetisation scheme

Other Important Features of Gold Monetization scheme

Minimum quantity of gold to be deposited should be atleast 30gm

Rate of interest is left at the discretion of Banks. Both principal and interest will be valued in
gold only. For e.g. if theres 100gm of gold in the account and interest rate is 1%, then on
maturity he gets 101 gram of gold. As in the existing scheme of SBI the rate is in the range of
0.75%-1% per year, so you may expect almost the same range in the new structure also.

Tenure of deposit will be one year and in multiples of one year. There will be provision to take
premature withdrawal too with some conditions.

Customer may redeem the deposit in cash or in gold. But this discretion has to be exercised at
the time of opening the account.

The gold deposits in these schemes will be exempted from capital gain tax or Income tax.
Unlike the sale of physical gold where the tax rate is as per income slab before 3 years and 20%
after indexation after 3 years, in gold monetization scheme there would be no taxation.

Download complete draft guidelines gold monetization scheme

Gold monetization scheme- Should you go for it?

First of all this is still in draft stage, so It is difficult to say if the structure as announced will
remain same or get changed. But yes if the structure remains the same, then this scheme does
look attractive to me.

From taxation point of view it is good. If someone has to sell the gold in near term then by using
this scheme structure one can make the transaction completely tax free.

The Gold Monetization scheme looks more suitable to the people having physical gold as
investments in the shape of coins or bars. By depositing it with bank in gold deposit account one
can earn on these gold holdings and also take back the gold in same form as and when required.
I am not sure if jewellery to be deposited in this account due to 2 reasons- one you have already
paid so much of making charges on that, second it is not 100% gold so impurities will be
deducted out of the value and if on maturity the purpose is to remake jewellery only, then you
will again bear the making charges.

Conclusion:

All in all, this Gold Monetization scheme is good for the country. India is worlds top gold
consumer. By mobilizing the household and institutional gold, we can reduce the import bill and
save our foreign currency reserves which will reduce our current account deficit. Many temples
and Institutions have lots of gold lying idle with them; if this scheme gains success then it is
good for all of us.

https://www.centralbankofindia.co.in/English/nri_pio1.aspx

https://www.iob.in/Rates_at_a_glance.aspx

Gold Monetization Scheme Will it impact the imports of gold?

During the announcement of the Budget of 2015-16, Finance Minister Arun Jaitley announced a
new scheme, the Gold Monetization Scheme, to replace the Gold Deposit and Gold Metal Loan
scheme. This new scheme allows the depositors of gold to earn interest on their metal accounts
and jewellers to get loans on these accounts.

Along with this, a new financial asset, called as Sovereign Gold Bonds were announced as an
alternative to purchasing metal gold. These bonds carry a fixed interest rate (2.75%), and are
redeemable at the face value of the gold (at the time of redemption).

The objectives of this scheme are to mobilize the gold stored in households and institutions
across the country, allow jewellers to borrow gold as raw material easily, and allow for less
import requirements of gold.

https://insideiim.com/gold-monetization-scheme-will-it-impact-the-imports-of-gold/
The three schemes launched by Govt. are:

(i) Gold Monetisation Scheme (GMS)

(ii) Gold Sovereign Bond Scheme

(iii) Gold Coin and Bullion Scheme

Prime Minister Modi also unveiled the first ever national gold coin minted in India with the
national emblem of Ashok Chakra engraved on it. The Gold Monetisation Scheme is aimed at
tapping part of an estimated 20,000 tonnes of idle gold worth Rs. 5,40,000 crore in family
lockers and temples into the banking system.

The Gold Sovereign Bond will be issued by the Reserve Bank of India (RBI) on behalf of the
government with an interest rate of 2.75%. The bonds will be sold through banks and designated
post offices. Describing the schemes as sone pe suhaga (icing on the cake), Modi said gold has
often been a source of womens empowerment in the Indian society, and these schemes will
underscore that sense of empowerment.

http://www.bankersadda.com/2015/11/gold-schemes-step-to-strengthen-
banking.html#ixzz4MVAUvbHE

Gold monetisation scheme (GMS) is a deposit scheme of banks where you will be paid interest
on the weight of gold you give. The minimum deposit is 30 grams (of 995 fineness). To make
a deposit under this scheme, you need to first get your gold tested from one of the centres
certified by BIS. These centres, gold refiners and banks will be in a tripartite agreement. After
doing an XRF (x-ray fluorescence) and a fire assay test, you will be told the result. If you still
wish to deposit the gold, the centre will give a purity certificate endorsing the weight and purity
of gold. You have to then take the certificate to one of the designated banks. In the meantime, the
banker will also get intimation from the centre of your gold deposit and he will credit your gold
deposit account with the equivalent amount of gold. The test centre will send the gold to a
refiner who will keep the gold in his warehouse (unless the banks choose to hold it themselves).

This deposit scheme will be available for the short term of one to three years, medium term of
five to seven years and long term of 12-15 years. While deposits of all tenures will be run only
by banks, for the medium and long-term deposits, the terms and conditions and rate of interest
will be fixed by the Central Government. At the end of the deposit period, your deposit, either in
cash/gold (medium and long-term deposits will be redeemed only in cash) will be returned to
you by the bank. If redeemed in cash, the rupee value of the gold deposit at the prevailing market
price will be paid.

India has surpassed China as worlds largest gold consuming nation with 562 tonnes of buying
so far this year, he added. Indias obsession with gold is rivalled only by China, with the metal
used widely in wedding gifts, religious donations and as an investment. Previous attempts at
mobilising this gold have been unsuccessful, but PM Modi is hoping higher interest rates paid
will help it to succeed this time.

Huge gold imports have pushed Indias current account deficit to a record $190 billion in 2013,
prompting the government to hike its duty on imports to a record 10%. Imports fell to an
estimated $34 billion in 2014-15, but Modi is looking to cut that further. Investors will have to
disclose their permanent account number, registered with the income tax department, if the value
of gold is worth more than Rs. 50,000 ($763.53). Some people fear it is a way for the
government to keep a tab on the source. Another concern is the likely loss of 20-30% of the
weight of jewellery as it is melted at certified centres at the cost of the depositor.

Some Key Features:

Gold Monetization Scheme

KYC - a must, but income is tax-free

Will be melted, but returned as gold

Fixed deposit, but can break it for a fee

Interest nominal, but it is on gold weight

Gold Sovereign Bond

Earns you interest

Minimal charges

Better liquidity

Read more: http://www.bankersadda.com/2015/11/gold-schemes-step-to-strengthen-

banking.html#ixzz4MVAdqalB

Reserve Bank today issued guidelines for the Gold Monetisation Scheme that allow banks to fix
their own interest rates on gold deposits.

The RBI notification in this regard comes ahead of the formal launch of the scheme by Prime
Minister Narendra Modi on Novermber 5.

The gold deposit scheme is aimed at mobilising a part of an estimated 20,000 tonnes of idle
precious metal with households and institutions.
As per the guidelines, banks will be free to set interest rate on such deposit, and principal and
interest of the deposit will be denominated in gold.

Redemption of principal and interest at maturity will, at the option of the depositor be either
in Indian Rupee equivalent of the deposited gold and accrued interest based on the price of gold
prevailing at the time of redemption, or in gold. The option in this regard shall be made in
writing by the depositor at the time of making the deposit and shall be irrevocable, it said.

The interest will be credited in the deposit accounts on the respective due dates and will be
withdrawable periodically or at maturity as per the terms of the deposit, it said.

The designated banks will accept gold deposits under the Short Term (1-3 years) Bank Deposit
(STBD) as well as Medium (5-7 years) and Long (12-15 years) Term Government Deposit
Schemes. While the former will be accepted by banks on their own account, the latter will be on
behalf of Government of India, it said.

The short term bank deposits will attract applicable cash reserve ratio (CRR) and statutory
liquidity ratio (SLR), it said.

However, it said, the stock of gold mobilised under the scheme by banks will count towards the
general SLR requirement, a move that will provide additional capital to banks for lending
towards productive sectors.

The CRR is the portion of the total deposits, which has to be kept with RBI in cash, while SLR
is the portion of deposit compulsorily parked in government securities.

Currently, banks have to set aside 4 per cent of the total deposit for CRR while 21.5 per cent for
meeting SLR requirement.

As per the RBI guidelines, there will be provision for premature withdrawal subject to a
minimum lock-in period and penalty to be determined by individual banks, it said. The
government had in September cleared the gold monetisation scheme aimed at tapping part of an
estimated 20,000 tonnes of idle gold worth about Rs 5,40,000 crore into the banking system.

There is no bar for maximum deposit but the minimum deposit at any one time should be raw
gold (bars, coins, jewellery excluding stones and other metals) equivalent to 30 grams of 995
fineness, it said.

Interest on deposits under the scheme will start accruing from the date of conversion of gold
deposited into tradable gold bars after refinement or 30 days after the receipt of gold at the
banks designated branch, it said.

With regard to utilisation of mobilised gold, the RBI notification said, the designated banks may
sell or lend the gold accepted under the deposit to MMTC for minting India Gold Coins (IGC)
and to jewellers, or sell it to other designated banks.

The gold deposited under medium to log term government deposit scheme will be auctioned by
MMTC or any other agency authorised by the Central Government and the sale proceeds
credited to the Central Governments account with the Reserve Bank.

Why Gold Monetization Scheme

India has around 20,000 tons of gold lying in households and temples. Thats the same weight as
around 3,300 adult elephants. Worth of gold is around $767 billion.

The idea is to tap into the countrys idle bullion by allowing owners to deposit their stocks with
banks to earn interest. The minimum deposit is 30 grams in the form of bullion or jewellery to
earn tax-free interest, under the draft rules. The mobilized metal might be loaned to jewelers by
the banks to make jewellery, in which case you wont get back the same metal you put in.
If the government is able to put the stockpiles of idle gold to use, it could help curb imports,
which currently stand at nearly 1,000 tons annually and reduce the countrys need for foreign
exchange reserves.

Objectives of the Gold Monetization Scheme:

The objectives of the Gold Monetization scheme are:

To mobilize the gold held by households and institutions in the country

To provide a fillip to the gems and jewellery sector in the country by making gold
available as raw material on loan from the banks.

To be able to reduce reliance on import of gold over time to meet the domestic demand.

Gold Monetization Scheme

The draft outline of the scheme has been prepared after due deliberations and consultations with
various stakeholders which include banks, refineries, hallmarking Centres, jewelers
associations; RBI; and various government departments.

1. Purity Verification and Deposit of Gold There are at present 350 Hallmarking
Centres that are engaged in certifying the purity of the gold that the jewellers
manufacture on a daily basis and for which they charge a fee from the Jewellers.
Gold needs to be stripped of stones, melted and tested for purity before it can be
deposited. These Hallmarking Centres will act as Purity Testing Centres.After
all the procedure mentioned in the draft scheme is completed and customer agrees
to deposit the gold, he will be given a certificate by the collection centre
certifying the amount and purity of the deposited gold.

2. Transfer of gold to refineries Purity Testing Centres will send the gold to the
refiners. The refiners will keep the gold in their ware-houses, unless the banks
 prefer to hold it themselves. For the services provided by the refiners, they will be
paid a fee by the banks, as decided by them, mutually.

3. Opening of Gold Savings Account with Bank When the customer produces
the certificate of gold deposited at the Purity Testing Centre, the bank will in turn
open a Gold Savings Account for the customer and credit the quantity of gold
into the customers account. Simultaneously, the Purity Verification Centre will
also inform the bank about the deposit made.

The summary of above points is depicted by a diagram given below:-

The bank will commit to paying an interest to the customer which will be payable after 30/60
days of opening of the Gold Savings Account. The amount of interest rate to be given is
proposed to be left to the banks to decide. Both principal and interest to be paid to the depositors
of gold will be valued in gold. For example if a customer deposits 100 grams of gold and gets 1
per cent interest, then, on maturity he has a credit of 101 grams.

The rate will be set by banks. But to attract depositors, the interest rates should be more than
4% to induce households to part with their gold
Lending Gold to the Jewellers

Gold Loan Account: The jewellers, on the basis of the terms and
conditions of the banks, will get a Gold Loan Account opened at the bank.

Delivery of gold to jewellers: When a gold loan is sanctioned, the jewellers will receive physical
delivery of gold from the refiners. The banks will in turn make the requisite entry in the jewelers
Gold Loan Account.

Interest received by banks: The interest rate charged by the banks will
have to cover the following:

Interest rate paid to the depositors of gold.

Fee paid to the refiners and Purity Verification Centres.

Profit margin of the banks.

The banks can directly get gold from the international market on a
consignment basis and lend it to the jewellers. If this route is more
lucrative, then the entire purpose will get defeated. Thus, this aspect will
also have to be kept in mind, while deciding the interest rate.

Conclusion:

Its a known fact that Gold & Real Estate were safe havens to park Black Money. Gold
Monetization Scheme is a good way to unlock the black money parked in the form of gold.
Currently, hoarders are also finding ways to either exit or convert it into a sort of productive
asset.

Gold Monetization Scheme will be sort of amnesty scheme for general public to declare
unaccounted gold lying in the lockers.
What is GMS?

First it mobilizes the gold consumed by households and other institutions of the country.

After mobilization it makes gold accessible to banks and Jewelers.

Then it reduces gold imports due to mobilization.

After reducing imports on gold, it improves liquidity in market.

Then finally it provides secure access to customers gold

The Indian government actually wants that Indian institutions and households who supply
gold will provide the gold to economy and in turn earn interest from it.

The government takes this gold and circulates it in economy, which will minimize gold
import burdens. This gold becomes an Investment vehicle for gold householders or
institutions holders.
How GMS works?

The interested households or institutions have to open gold saving account with bank.

Then purity of the gold which customer wants to deposit will be checked at accessing
centers after cleaning.

Then receipt will be generated by accessing center, which will be provided to customer.

At the same time as saying, center also informs bank about the value to be credited to
customer.

Then the gold will be sent to refineries for melting or storage.

Banks inform refineries to send gold to jewelers.

Finally refineries send gold to jewelers based on the information provided by banks.
All this process is described in following diagram

Process of Gold Monetization scheme

Why GMS?

Here are the answers to all questions as to why Indian government proposed GMS?

Around 20.000 tons of gold is held by Indian households and institution with a total
worth of $1 trillion.

$1 trillion makes up more than 50% of the GDP (Gross Domestic Product) of nation.

Mobilizing and Monetizing even a small percentage of unused gold will reduce huge
amount of gold import requirements of India.

If it is possible then more money will be available in Indian market which will enhance
Indian economy.
 In addition, we can divert this increased liquidity on other aspects such as healthcare,
education, aquaculture, transport infrastructure development, repayment of international debt
etc.

Why Gold Monetization scheme

Benefits of GMS

Customer will earn interest (2.25% to 2.5%) on their idle gold thus, adding value to their
savings.

The scheme reduces gold import for our country.

This is flexible schemes so that customers can withdraw their investment/gold when they
need it.

Customers can starts investment from 30gm of gold.

No limits on Maximum Investment.

How do the banks utilize the accumulated gold?

Here are ways using which the banks can utilize the gold reserves:
Lending to Jewelers

Banks earn interest on gold by giving it to jewelers reducing the total gold import.

Invite Foreign Currency inflow

The gold can be sold to the other counties and inviting foreign currency. Foreign exchanges helps
stabilize Indian Rupee.

Use Gold to Meet CRR and SLR Requirements

The two basic requirements of Banks to stay operational are:

Cash Reserve Ratio (CRR)

Statutory Liquid Ratio(SIR)

Nation has to maintain cash reserves with RBI for unexpected liquidity mismatch and to prevent
bankruptcy. Banks are allowed to maintain CRR and SLR using the mobilized gold which
enabling them to circulate more money in economy.

Problems with GMS

Following are some of the problems in implementation of GMS

Indian people are attracted to gold not only because of its value but also because of
cultural aspects. Especially in South India, so liquidating gold might not be acceptable to
Indian customers.

Most of the people do not have proper documents proving the ownership of gold, which
they want to invest.

Banks will pay interest to depositors in gold and earn interest from jewelers/borrowers in
cash, which creates the risk of mismatch, leading to catastrophic results.

The banks will not permitted to make CRR and SLR deposits in gold by RBI because
CRR deals with liquidity mismatch and using gold as CRR is risky due to continuous change
in gold prices.
Stumbling blocks/Barriers/ Limitations in Gold Monetization Scheme

Offer higher interest rates:

Currently the Gold Monetization Scheme offers only 1% interest a year, on the gold deposited
under this scheme.If the Gold Monetization Scheme offers an interest rate of 1.5%-2.5%, it could
be on par with the rate offered by FCNR (foreign currency non-resident deposits). This is the rate
offered to NRIs who make deposits in India.

Melting of gold:
The main problem with the Gold Monetization Scheme, is customers are not willing to have their
family gold jewellery and ornaments melted and converted to gold bars. This is a genuine
problem which the Gold Monetization Scheme has to address. The Gold Monetization Scheme
can offer a higher rate of interest, if a customer is willing to have his gold jewellery melted. A
customer not willing to have his gold jewellery melted has to settle for a lesser rate of interest.

Incentives to banks
According to rules, banks are forced by the Government to lend to certain sectors called priority
sector lending. This is lending in the agricultural sector, housing for the poor, education and
student loans and lending to people of low income. Banks lend the gold bars melted from your
gold jewellery to jewellers. These jewellers pay interest on this metal gold loan. If this lending of
metal gold loans to jewellers can be categorized as priority sector lending, banks would be
greatly benefited. Banks would encourage and promote the Gold Monetization Scheme and
customers might readily accept it.

Increase the number of testing centers

India currently has over 350 hallmark centers (used for testing the purity of gold).Most of these
testing centers are located in highly populated metros. The number of hallmark centers need to
be increased across the country. This means gold purity centers. need to be opened all over
India.
Tax benefits
The Gold Monetization Scheme is exempt from income tax, capital gains tax and wealth tax. The
Gold Monetization Scheme has the potential to be highly successful and solve the problem of the
nations high gold import bill.

GMS Background :-

India imports 40% of the Worlds total production of Gold, making India as the top
importer of Gold metal.

India imports approx 1000 tons of Gold per year.

The imports are mainly from China, USA, Australia, South Africa and Russia.

In India, approx 4000 tons of gold is lying idle in Temples, and approx 15000 tons is in
Indian homes.

Gold imports of India is on the rise.

Indians prefer buying gold in metal form, whereas Gold bonds, futures are preferred in
other countries.

Average Indian middle class familys lifetime expenditure on Gold is approx 15 to 80

lakhs.

Demand for gold in India is different in different parts of the country. Generally, South
Indians buy lots of gold ornaments.

Reserve Bank of India has setup a committee to study why Indians spend lots of money
on Gold. The committee will submit its report in 2017.

Why Indians are obsessed with Gold :-

 In India, Gold is considered as auspicious.

To wear daily or occasionally.

Security in the times of inflation.

Prestige issue.

To follow trend.

Gold is considered as a good investment option, as the gold price in india is always on the
rise.

It is cashable at any time.

Many festivals in India are associated with Gold, at least in these days.

Gold is compulsory in Indian weddings.

The tradition of giving Gold jewelry to bride is continuing till now. In ancient days, this
tradition was started to help women in difficult times because the jewelry is brides
independent wealth.

A good chunk of black money is converting into gold, because buying gold jewelry
doesnt require documents.

Storage of gold is not taxed, whereas tax is applicable on land, fixed deposits etc.

People with no bank accounts, mostly from below poverty line saves their little earned
money in the form of gold as they barely have alternate investment options.

Rich and middle class are increasingly offering gold ornaments as gifts to temples.

Effects on India :-
 A large chunk of foreign exchange reserves is being spent on Gold imports. Rupees
value is getting hit by this phenomenon.

More debt to India.

Gold jewelry will not be sold soon. Idle gold cannot help our Economy.

Half of savings of Indians are in the form of gold. If this money is in banks, big positive
changes will happen in Indias Economy.

Rich and middle class are buying gold. As a consequence of that rupee depreciates,
thereby inflation occurs. And the effect will be more on poor, because of price rise. Hence, it
is widening gap between rich and poor.

What Government is doing about it :-

Govt of India increased tax on gold imports to lessen the demand for gold imports.

Gold Monetization Scheme was launched in 2015 to bring out the gold lying idle in
homes into the Indian Economy. Through this scheme people can deposit their gold and can
earn interest on it. But the response was not upto the mark since the jewelry will be
converted into gold bars. Temples are the major beneficiaries for this scheme.

You may also like : Direct Benefit Transfer (DBT) Scheme - Pros and Cons

What India still has to do :-

Indian Government should rise interest rates on saving accounts to encourage savings in
the form of money.
 Awareness programs should be conducted on alternate investment options and also about
the effect of gold imports on Indian economy.

PAN card should be made mandatory to buy costly jewelry to curb black money getting
converted into gold ornaments.

What we can do :-

We can invest on other alternatives like mutual funds, Gold bonds etc. Its safe for us and
the for the Economy as well.

We can wear other types of jewelry rather than piling up gold ornaments in home.

Conclusion :-

It is impossible to separate Gold from Indians, at least now. But we can control ourselves
from buying more and more ornaments. We should look beyond gold for investment options.
Increase in interest rates will definitely encourage people to save money in banks instead of
buying gold.

Cabinet recently approved Gold Monetization Scheme and Sovereign Gold Bonds. The prime
objective behind the launch of Gold Monetization Scheme and Sovereign Gold Bond is to reduce
Import of gold and reuse the gold lying idle in lockers of Indians. It is estimated that around
24,000 tonnes gold are lying into the locker or at household.

The second objective behind the launch of this scheme is to make gold productive asset.
Currently, gold is a non-productive asset. Under this scheme on deposit of gold, you can earn
interest. This scheme is likely to bring a lot of yellow shining metal into the banking system to
give a boost to the Indian economy.
 The third objective of this scheme is to provide a fillip to the gems and jewellery sector in the
country by making gold available as raw material on loan from the banks.

Lets take a look at key features of Gold Monetization scheme and Sovereign Gold Bonds.

Gold Monetization Scheme Key Features

1. Gold Monetization scheme allows investor and jewelers to deposit physical gold with
banks. This scheme will also allow institutions like Tirupati Balaji Temple to deposit its idle
lying gold.
2. Basic fundamental of this scheme is like fixed deposit scheme. In fixed deposit scheme,
you give money and earn interest while under this scheme you will give gold and earn interest.
Bank will open gold deposit account for this scheme.
3. 1-1.5% interest will be payable on deposited gold.
4. A Minimum 30gms of gold can be deposited at the bank for an interest.
5. The deposited gold will be melted and kept as a bullion.
6. One has to specify maturity return preference in the form of cash or gold at the time of
taking a deposit.
7. If you give return preference as a gold interest will be given as a gold. For example, if
you deposit 100gms of gold and get 1% interest, on maturity will receive 101 gms.
8. The gold deposit can be done for minimum 1 year to maximum 15 years.
9. You will be allowed to break gold deposit in between just like a fixed deposit.
10. It is not clear that whether interest income will be exempted from income tax or not. No
information is yet available on capital gain tax. However, it is expected that in next budget it will
be considered.

How Gold Monetization Scheme function?

Gold Deposit

Under Gold Monetization, scheme customer will bring gold in any form. Gold deposit account
will be opened by banks. There will be collection center which will verify and assess the value of
the gold. This center will inform the bank about value to be credited in the customer account.
 This gold will be converted into bar and stored in a vault at the refinery. Customer will be paid
interest amount or gold as per scheme on maturity.

Gold Lending

Any jeweller who is looking to take gold from the bank can open approach the bank and open
Gold Loan account. On payment of money for gold loan bank will instruct refinery to send gold
to jewellers.

Sovereign gold bonds Key Features

1. Sovereign gold bond is investment option to buy a paper bond linked to gold price.
Sovereign gold bond is equivalent to Gold ETF.
2. Sovereign gold bonds can be bought by only Indian residents. NRI is not allowed to
purchase this bond.
3. One person can purchase 500gms of sovereign gold bonds per year.
4. This bond will be issued for 5-7 years and denomination will be 5, 10, 50 and 100gms.
5. The RBI will issue the guarantee for the payment on behalf of the government of India.
6. You will be allowed to trade this bond at the designated exchange.
7. The risk of change in a price of gold will be borne by the government.
8. One can use this bond for applying for loan as a security.
9. Tax benefit applicable on Sovereign gold bond is yet not known. The government will
probably extend tax benefit in next budget.

Benefits of Gold Monetization Scheme and Sovereign Gold Bonds

To Investor and Jeweler

o An investor can earn money from unused idle gold. This will make gold productive asset.

o An investor can convert gold into cash using this channel.

o The jeweler will get raw material gold from bank directly (domestic supply). This will
reduce cost of imports.

To Government and Economy-

o Gold import is expected to reduce. Foreign currency reserve will be saved. It will boost
the economy.

o The banks will be able to raise loan using this gold as a security in the foreign market.

o This gold can be sold to generate foreign currency and it will increase foreign reserve.

This scheme will defiantly help millions of household and Indian economy. The success of this
scheme will depends upon investors, however, the government has very high hope about these
schemes.

Gold Monetization Scheme in India: Speculative Success Story

What is it all about?

 People of our country possess a huge amount of gold as we know India is the largest consumer of
Gold. So this scheme deals with making the not utilized gold to be transformed into money or we
can say it deals with the objective of making Gold productive.

What is expected to happen under this scheme?

People will bring their gold possessions to banks, deposit there and get interest. It is just like we
get when we deposit cash in banks. It is at this point where gold is expected to be monetized.

Estimated usefulness..!!

A large amount of gold is blocked in every household. It will come before the government. As
we know gold reserves of a country determine its wealthiness. Idle gold lying in peoples house
in their almirah, vaults or even bank lockers are of no use unless they pay us something.

People keep gold in bank lockers where they have to pay locker charge. But this scheme is really
unique and will prove to be unique if implemented wellas instead of paying they will be
getting something is return.

A big question mark here?? How far will it be successful??

A good thought indeedit can make wonders in Indian economy..But there are always some
flaws..There are many things yet to be revealed and those are on the edge to decide For
example:

People in India think buying gold as an auspicious deed so there are less chances of
parting from their ornaments.

It is said that only raw gold will be accepted..But normally jewellery possessed is in
22carat..24 carat raw gold is a bit tough to find with households.

People having emotional attachment with metals and that too gold..Will definitely think a
hundred times before entering into such a scheme.
 The two options of return after maturity..In cash or in gold. According to the scheme,
depositors of gold in bank have to opt for any one of the options right at the time of opening the
gold account. So here its again a point of dilemma for a common man.

A person having knowledge about financial economy and who can relate price of gold
can still have some relaxation in mind that even I take my return in rupee terms it will not cause
me any harm because gold is such an item whose price will definitely rise over a period.

But a layman may think that it is risky to opt for any option right now as he may have a
fear that I will be in a loss if price of gold at that time of maturity falls. And so there are chances
of not coming up with any gold deposit.

The mobilized gold might be loaned to jewelers by the banks, to make jewellery, in
which case people wont get back at maturity the same item which they deposited. This is again a
problem with people having emotional attachment with their belongings.

Now comes the question of Interest rates. As under the scheme it will be set by the banks
but still it should be above 3% if at least then depositors get attracted and take the decision to
part with their gold items.

Another thing is that people may be asked by the banks for proof of ownership of gold
which is next to impossible in India because In India gold keeps on transferring from one
generation to another. This fact may again opt out people from entering the scheme.

Some points which may attract depositors are:

Minimum deposit is very less this time i.e. 30 gms.Earlier the govt. of India had tried but
it was all in vain because the minimum deposit was as high as 500 gms which is really difficult
for an Indian household to spare.

If interest rates are pretty high then only it would act as an attraction to the depositors.
Earlier a similar scheme in 1999 failed because the interest rate offered was as low as 0.75%-1%.

Tax exemption is another ray of hope which may pull some depositors towards the
scheme.
However, the idea to tap the locked gold in Indian household is a wonderful idea and would
really create fantastic and outstanding results only if the outline is well bounded and if every
norm is made from the middle class people point of view keeping in mind its capacities &
capabilities.

After one month it has netted only one kilogram out of 20,000 tonnes of privately held gold. So,
the scenario is such that people part from their gold, and gets at most 3% rate of return their
investment. Depositors may get both the principal and interest in rupees which has been
devalued by the government up to 15% per year.

But am sure Indian Government will not lose hope. There will be some innovative implications
to make the gold monetization scheme fruitful.

This is governments latest attempt at monetizing the stockpile of gold lying with Indian
households, and thereby creating a pool of gold that is available to the gems and jewellery
sector. This, in turn, could reduce imports of gold.

Before going further, I would like to point out some existing facts.

India is the largest importer and user of gold. We import close to 800-1000 tonnes of gold
annually, for which, we pay close to 50 Billion Dollars every year. It ranks 2nd to the
import of crude oil, in the country.

India ranks highest when it comes to investing in gold.

Stocks of gold in India currently stand at over 22,000 tonnes held by individual
households and temples, which is neither traded nor monetized and is worth about Rs 60
lakh crore at the current market price.
 The world gold council(WGC) has in its report vision 2020, prophesied that India will
be included in the top 10 countries in terms of its riches in gold.

7 % of Indias Foreign currency treasury constitutes of gold.

In the Budget speech, Finance Minister Arun Jaitley had introduced multiple measures to
monetise gold, including the gold monetisation scheme, a sovereign gold bond and
developing an Indian gold coin which will have the Ashoka Chakra, hence unlocking the
potentially transformative value of the gold stored in millions of private household and boost
the economy .

Gold should be put to work for the Indian economy, creating jobs, developing skills,
generating exports and revenues.

The government is looking to address the savings habit underpinning gold demand, support
value addition, increase employment opportunities and benefit the industry in an organised way
without curbing supply or impacting the current account deficit.

The GOLD MONETISATION SCHEME (GSM)

You take your gold to banks, who test it for purity and after due checks and balances, accept a
gold deposit. The banks can sell it for foreign exchange or loan it out to jewellers, get interest
from those they on-lend this gold to and finally pay out an interest to the depositors.

The above scheme will allow the depositors of gold to earn interest in their metal accounts and
the jewellers to obtain loans in their metal account.

The scheme will initially be launched at a few places because the government will have
to first set-up infrastructure for facilitating easy and secure handling of gold.
 A Gold Savings Account will be opened in a bank.

Gold collected from consumers will first be cleaned and measured at A BIS APPROVED
test center; it would then be melted to test for purity and converted into gold bars. After
the tests, consumers can either deposit the gold for a fee or take it back after paying a
nominal fee.

Those willing to deposit the gold will be given a certificate mentioning the amount and
purity of the deposited gold. Banks will open a 'Gold Savings Account' on the basis of
such certificates.

Consumers will be paid interest on their gold savings account after 30/60 days of account
opening, the rate of interest ranges from 1%-3%.

Both principal and interest will be paid to the depositors of gold, will be 'valued' in gold.
For example if a customer deposits 100 gms of gold and gets 1 per cent interest, then, on
maturity he has a credit of 101 gms.

The customer will have the option of redemption either in cash or in gold, which will
have to be exercised in the beginning itself (that is, at the time of making the deposit).

The tenure of the deposit will be minimum 1 year and in multiples of one year. Like a
fixed deposit, breaking of locking period will be allowed.

The Gold Saving Account will be exempted from CAPITAL GAIN TAX, WEALTH TAX AND
INCOME TAX.

Related: Importance of Insurance in Financial Planning

GSM AND CRR/SLRS

Banks need to maintain a mandatory reserve requirements such as cash reserve ratio (CRR),
currently 4 percent, and statutory liquidity ratio (SLR), 21.5 percent.

To incentivise banks, it is proposed that they may be permitted to deposit the mobilised gold as
part of their CRR/SLR requirements with RBI. So, if mobilised gold is considered for meeting
the CRR and SLR requirements, then banks would have additional cash for lending purposes.

Sovereign Gold Bonds

If you have the belief that gold prices will go up, just put the money in gold bonds. The beauty
of this instrument is that when the price of gold goes up the value of the bond price also goes
up by the same amount.

Government research shows that every year, investors buy 350 tonnes of gold in the form of
coins and bars. These investments can be channelised in sovereign bonds

It is introduced as an alternative to purchasing physical gold. The bond or financial instrument

will carry a fixed rate of interest and when investors sell the bond they will get the value of the
gold.

These gold bonds will also offer a fixed rate of interest, Interest rates on such bonds could be
as low as 1.5-2 per cent .

If the scheme becomes successful, it could help reduce the import of gold into the country.

GOLD COINS
India will soon have its own gold coin, with the Ashoka Chakra minted on it.

The Govt Proposes to mint gold coins with the Ashoka Charka which will help to recycle gold
internally in India. Jaitley said that the Indian consumers depend on foreign gold coins to meet
their needswhich results in Indian cash landing up in external markets. Hence, by producing its
own, the countrys imports are curbed, there by reducing the countrys Current Account
Deficit.

Once introduced, these moves will ensure orderly recycling and enhance transparency, as it has
the potential to translate gold savings into economic investments well as help in more effective
bookkeeping of the same,

This will also pump up the business of refining gold.

In order to ensure that the schemes are a success, the Govt has to look at some key issues :-

Hence, the above schemes are aimed at outlining objectives for the industry that address the
savings habit underpinning gold demand, support value addition, increase employment
opportunities and benefit the industry in an organized way without curbing supply or impacting
the current account deficit.

Here's how the gold mobilization scheme is likely to work according to the draft guidelines:

1) The scheme is meant to mobilize gold held by domestic households and institutions. Gold
collected through the scheme will be made available to jewelers for manufacturing of new
jewellery and other items.
 2) The scheme will initially be launched at a few places because the government will have to first
set-up infrastructure for facilitating easy and secure handling of gold.

3) Gold collected from consumers will first be cleaned and measured at test centres; it would
then be melted to test for purity. After the tests, consumers can either deposit the gold for a fee or
take it back after paying a nominal fee.

4) The minimum quantity of gold that a customer can bring is proposed to be set at 30 grams.

5) Those willing to deposit the gold will be given a certificate mentioning the amount and purity
of the deposited gold. Banks will open a 'Gold Savings Account' on the basis of such certificates.

6) Consumers will be paid interest on their gold savings account after 30/60 days of account
opening. The amount of interest rate to be given is proposed to be left to the banks to decide.

7) Both principal and interest will be paid to the depositors of gold, will be 'valued' in gold. For
example if a customer deposits 100 gms of gold and gets 1 per cent interest, then, on maturity he
has a credit of 101 gms.

8) The customer will have the option of redemption either in cash or in gold, which will have to
be exercised in the beginning itself (that is, at the time of making the deposit).

9) The tenure of the deposit will be minimum 1 year and in multiples of one year. Like a fixed
deposit, breaking of locking period will be allowed.

10) Gold savings account will be exempt from capital gains tax, wealth tax and income tax.

What are the benefits of GMS for end users?

For depositors, Gold Monetization Scheme intends to provide two benefits:

As low as 30 grams of gold can be deposited.

There will be no income tax, wealth tax or capital gains tax levied on the Gold Deposit
Accounts.
How do the banks intend to utilize the accumulated gold?

There are several ways in which the bank can utilize the gold reserves:

Lending to Jewelers: Banks can lend the metal to jewelers and earn interest on that lending.
Additionally, lending the gold to jewelers will help reduce the total gold import. As import bills
are dragged down, the Current Account Deficit (CAD) of government will be reduced. CAD
occurs when total value of imported services and good is greater than total value of exported
services and goods. CAD means that the country is using international financial aid to operate.
This is a liability and eventually needs repayment. So, excessive CAD is bad and reducing CAD
is good for economy.
Invite Foreign Currency Inflow: Banks can actually sell the gold reserves to other countries
and invite Foreign Currency in country, not in form of a debt but in form of earnings. A steady
reserve of foreign exchanges will help to stabilize Indian currency value and hence, make it
stronger against other currencies of the world.
Use Gold to Meet CRR and SLR Requirements: CRR or Cash Reserve Ratio and SLR or
Statutory Liquid Ratio are two basic requirements that banks need to fulfill in order to stay
operational. These are actually cash reserves that banks need to maintain with RBI to deal with
sudden liquidity mismatch and prevent bankruptcy. It has been proposed that banks be allowed to
maintain CRR and SLR using the mobilized gold. This will allow banks to circulate more money
in economy, which will provide the much needed impetus for economic growth.

What are the problems with Gold Monetization Scheme?

Here are some of the problems as pointed out by experts:

The affinity for gold among Indians is not because of the monetary value it holds. It is purely
cultural and emotional. Indians will be reluctant to see their valued gold melted and lent or sold.
Particularly in South India, gold jewelries are heirlooms. This is going to be a major trouble.
A person depositing the gold possessed as heirloom will not have proper documents to prove
that the gold belong to him or her. This is where black money and white money comes into play.
Some may produce legitimately owned gold. Others may present illegally acquired gold. There
will be no way to tell the difference in absence of proper document. Thus, government will
actually open up a way for frauds to convert their black wealth into white money.
Banks are free to offer the interest rate for gold deposit to the depositors and banks propose 1 to
2%. This is too low a rate to give people a good reason to give up their assets they are
emotionally and culturally attached with.
Banks intend to pay interest to depositors in gold and earn interest from jewelers/borrowers in
cash. Earning in cash and paying in gold creates the risk of significant mismatch that may
eventually lead to catastrophic results.
International Basel norms may not permit the banks to make CRR and SLR deposits in gold and
RBI isnt much comfortable with the idea of gold deposits for CRR. This is because CRR is
meant for dealing with liquidity mismatch and using gold as CRR will lead to extreme volatility
because of gold prices changing continuously. There may be instances when drop in gold prices
may lead to drop in CRR. The minimum CRR requirement is 4% and RBI is not very keen on
risking this.