How Gold Monetisation Scheme is win-win situation for every one?

How Gold Monetisation Scheme is win-win situation for every oneHow Gold Monetisation Scheme is win-win situation for every one?

Couple of days back, Finance ministry have issued draft guidelines on Gold Monetisation Scheme in India. This is aimed to unlock the value of yellow metal holdings by Indians in large amounts. What is this Gold Monetisation Scheme? What are these draft guidelines issued by the Finance Ministry on a gold monetisation scheme in India? Who would get benefitted from this scheme?

What is Gold Monetisation Scheme?

Govt of India has announced in recent budget about Gold Monetisation Scheme. This scheme is floated to monetise Gold of Indian householders and other institutions like temples, trusts, banks and jewelers which are holding physical gold with an aim to cut down the gold imports. Under Gold Monetisation scheme, one can deposit gold with bank and get interest every year. On maturity one can do gold redemption or equivalent cash based on value of gold at that time is paid back. Currently there is 24,000+ tonnes of gold lying with Indians in the form of physical gold. Every year we are importing 800-1000 tonnes of gold. With these guidelines, Govt. of India would get benefitted by reducing the imports of gold.

Also Read: Gold Mutual Funds Vs Gold ETF's – Which is best investment option?

What are the key features of draft guidelines issued for Gold Monetisation Scheme?

  • Finance ministry would seek responses from public before it finalizes on this proposal
  • It would allow depositing of gold, which would earn interest on such gold deposit accounts. On maturity one can get gold back or equivalent amount at prevailing rate of gold would be paid back.
  • One can deposit as low as 30 grams of gold.
  • Gold could be jewelry or bullion / bars.
  • Likely exempt from Wealth Tax.
  • Likely exempt from capital gains tax.
  • Exempt from income tax for the interest received on gold deposits.

How does the Gold Monetisation scheme work exactly?

  • Depositors would deposit gold with banks. However, depositors would do purity of gold through testing centres (Hallmark centers). If you have jewelry or bars or coins, these would be melted to know the purity of gold. Based on purity, the actual value of gold would be determined. You can take back your melted gold in case you feel you are not satisfied with the process.
  • Based on testing/hallmarking, one can open gold savings account with banks. 
  • Banks would pay interest on such gold every year. Interest rates would be decided by the banks.
  • One has to deposit minimum of 30 grams of gold.
  • The minimum period of investment would be 1 year.
  • On maturity, one can get gold redemption or the equivalent amount.
  • Tax benefits, i.e. wealth tax / capital gains tax / income tax on interest received would get exempted based on guidelines which would be finalised by the Finance ministry in coming months.

Who would benefit from the Gold Monetisation Scheme?

Primarily, individuals who are holding physical gold in anticipation of gold prices rising in future would benefit from this scheme by depositing the same with bank. Apart from this temples and trusts which hold huge amounts of gold could benefit. Even banks would benefit from this Gold monetization scheme as it would add one more source of income. Jewelers who just keep gold bars in their lockers could also benefit as they would  get some interest from this.

Also Read: Personal Loans Vs Loan on Gold – Which comes cheaper?

Negatives of Gold Monetisation Scheme

  • Though it looks easy, there could be chances of black money getting deposited in the form of gold deposits and interest would be paid on such money.
  • Banks may question individuals about receipts where they would have earlier purchased the gold.
  • Banks have authority to fix the interest rates. Interest rates on such deposits would be very low.
  • If one wants to deposit jewelry, such gold jewelry would be melted and purity of the gold would be determined. Wastage could be removed from 4% to 20%, depending on the purity of ornaments. One cannot get their ornaments/Jewellery back as gold bar/cons would be returned at maturity.

Conclusion: I feel gold monetization Scheme is a good scheme, especially for those who are accumulating gold for their daughter's marriage or in anticipation of gold prices increasing in the future. In such case instead of keeping them in a locker, one can do gold deposits with the bank and earn interest too. When they need they can redeem in the form of gold. Yes, there are several critics who say this is flawless scheme, but I feel it would be based on the need of the person. If you are not gold lover or you do not need any gold in near term, simply do a bank FD or invest in mutual funds which provide far better returns.

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How Gold Monetisation Scheme is win-win situation for every one


  • Malar

    All your articles are well structured, informative and in simple language. Very useful. Keep up the good work.

  • panduranghari

    This analysis is incomplete because it does not explain why 1999 and 2006 acts failed.

  • Austin

    Suresh , Please allow me to have an alternate opinion on this.

    I would be wary of such gold monetisation scheme of Government , GOI wants to bring the gold from peoples hand into its control and in return would print/give Rupee as interest/returns

    Due to crisis thats brewing up in the bond market in US and EU crisis the next big Economic Crisis far bigger than 2008 crisis is staring at us its not the question of if but when and since Money Printing/QE could do no good other then create bubble in past 6-7 years ,Gold would play a significant role in global monetary system in years ahead

    Its better people of India keep the gold to themself and dont give it away to the banks , chances are we may not get the gold back and GOI would just keep giving higher interest to keep the gold to itself.

    Be wary of any scheme that tells you to keep gold in return of paper money , Gold is an real asset and had been so past thousand of years.

    There is a reason Central Bank of China and Russia are buying gold in large amounts

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