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GMS Yojana: Features, Time Period and Effectiveness

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What is Gold Monetization Scheme?

Gold Monetization Scheme(GMS) was introduced by the Indian government on 5th November 2015 to make productive use of gold stored by individuals, enterprises, and temple trusts. The intention was to mobilize the idle gold lying unused in households and institutions by encouraging deposits in the bank and providing monetary benefits. The scheme allows people to deposit gold in the RBI-designated banks for a certain period and earn interest on the same. It is like the fixed deposit scheme of the bank where money is deposited for a specified period and interest is earned on the amount annually. The gold monetization scheme provides around 2.5% interest based on the value of gold. The Gold monetization scheme can reduce the country’s dependency on gold imports in the long run.

Features of Gold Monetization Scheme:

Following are the features of the Gold Monetization Scheme:

  • All Indian residents can invest in the Gold Monetization Scheme.
  • The scheme requires a deposit of a minimum of 30 grams of raw gold.
  • The deposit of gold can be in the form of a bar, coin, or jewellery.
  • There is no maximum limit on the amount to be deposited under the GMS.
  • The scheme allows withdrawal only after a minimum lock-in period. A penalty will be charged on the interest if withdrawal is done before the completion of tenure. 
  • A purity test is performed on the gold before deposition through BIS-certified Collection and Purity Testing Centres (CPTCs). More than 300 such government-approved Centers are qualified to administer the purity test and give certificates.
  • Anyone can also open a Gold Savings Account at one of the reputable banks.
  • All commercial banks designated by RBI are authorized to implement the Gold Monetization Scheme in India.

Benefits of Gold Monetization Scheme:

A key challenge of holding gold is to store it safely because of the risk of theft and loss. The gold kept in bank lockers also incurs annual locker rent. Therefore the gold monetization scheme is a safer way of storing gold and also earning interest on the deposit which is an added advantage. There is flexibility to deposit as low as 30 grams of gold and also to withdraw as per the requirement by paying some charges. A portion of gold deposited by different individuals and companies is circulated in the market to help reduce gold imports. Some can be given to the RBI for minting gold coins that can be sold. Also, at the end of the maturity period, both the capital gain and the interest are tax-free. There won’t be any income tax applied to withdrawals. This scheme also allows earning additional income over and above the increased price of gold, up to a maximum of 2.5 percent each year.

Time Period of Gold Monetization Scheme:

The Gold monetization scheme offers three different tenures for the deposit of gold and earning interest. These are as follows:

  • Short-Term Bank Deposit (STBD): Under this scheme, one can deposit gold for a period of a minimum of 1 year to a maximum of 3 years. The corresponding rate of interest also varies. For 1 year the interest rate is 0.50% per annum. Above 1 year up to 2 years, it is 0.55% per year and above 2 years up to 3 years, the interest is 0.60% per annum.
  • Medium-term government deposit (MTGD): This scheme allows the deposit of gold for 5 to 7 years. The rate of interest is 2.25% annually.
  • Long-term government deposit (LTGD): The tenure of this scheme is 12 years to 15 years. It offers an annual interest rate of 2.50 %.

Penalty Under Gold Monetization Scheme:

Just like the bank’s fixed deposit scheme, penalties are applicable also with Gold Monetization Scheme. If withdrawal is done before completion of a specified period. The rules allow a lock-in period for the deposits and after that, the scheme can be discontinued before premature payments. The rules are as follows:

  • Short-Term Bank Deposit (STBD): A lock-in period of 1 year after which a penalty will be applicable on the interest rate if withdrawn earlier. 
  • Medium-term government deposit (MTGD): Allowed withdrawal any time after 3 years with an applicable penalty on interest
  • Long-term government deposit (LTGD): Allowed withdrawal any time after 5 years with an applicable penalty on interest

Effectiveness of Gold Monetization Scheme:

The Gold monetization scheme requires a deposit of gold to the bank. The bank checks the purity of gold and decides the value. Then the gold is melted and converted to gold coins. This means if you deposit gold jewellery in the bank under the GMS, then at the time of maturity after the specified period, you will not receive the gold in its original shape and form. This may be the reason why this scheme has not received the desired response because most people like the gold to be returned in the sale form as it was deposited. People have some sentimental values attached to gold jewellery so they don’t like the idea. Gold jewellery is kept for future purposes like weddings etc. Again many families keep gold for emergency purposes because it is easy to sell gold and arrange funds. They do not prefer to deposit gold in a bank to earn money as annual interest. The individuals or trusts who store gold only for investment purposes may find GMS a suitable option.

Conclusion:

Gold is considered one of the most precious assets of the country The initiative of the Gold monetization scheme is an important step taken by the government of India to it for productive purposes of strengthening the economy by reducing dependency on gold imports. This scheme utilizes the gold deposits in households and institutions in a productive way. Indian residents are encouraged to securely deposit their idle gold in the bank and earn interest in return which adds to their savings. There is a need to be aware of the benefits of this scheme to people, so more participation could be done.


Last Updated : 03 Nov, 2022
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