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Gold Monetization Scheme-Earn Interest on Jewellery



You must have heard the famous saying “There's Something About Gold That Brings Out The Avarice In Men”. Parting with your gold is like parting with a piece of your heart. Your gold lies idle, hidden in your cupboard locker or a bank locker for years. The Government plans to bring all this hidden gold back into the economy in a bold scheme called gold monetization. Tired of leaving your gold lying idle in the bank locker. Want to earn interest on it. Now’s your chance to use the Gold Monetization Scheme to earn interest on jewellery.

How is it done….

You walk into any of the 350 gold testing centers in India and get your gold jewelry tested. You have to get your gold jewelry tested at any of the 350 hallmarking centers in India which have the Bureau of Indian Standards (BIS) certification. These are gold purity testing centers. You come to know the approximate value of the purity of gold in your gold jewelry. You change your mind on going for the gold monetization scheme. You simply walk out with your gold. Let’s say you are happy with the assessment made by the purity testing center and want to continue with the gold monetization scheme. You will have to fill up a KYC form (Takes about 45 minutes) and give your consent so that your gold can be melted. Your gold is then melted and any studs or precious stones are removed (Most of the jewellery in India have precious stones). Pure gold is then extracted through a fire assay test which might take 3-4 hours. You come to know how much gold you really have through this process. You lose your nerve (You say no) and decide to back out of the gold monetization scheme. You can exit even at this late hour and take your gold back in the form of gold bars. If you decide to continue with the gold monetization scheme you will be given a certificate (deposit certificate) which says you have ‘X’ quantity of gold with ‘Y’ amount of purity. This certificate is the proof of ownership of the gold. Your gold is then held at the center or even a bank. (Secure Holding).

You take your certificate to the bank….

You take your deposit certificate and approach a bank to make a gold deposit. You submit the deposit certificate and the bank opens a gold savings account in your name paying you interest. The interest you get on your gold deposit is decided by the bank.

How does the bank pay you interest on your gold deposit

You can opt for cash or gold on redemption depending on your preference. You have to compulsorily state your preference at the time of making your deposit.

Let us say you choose a gold redemption

o You deposit 100 grams of gold with a bank. The bank pays 1% of interest on the deposit you make with them.1% of 100 grams is 1 gram.
o The bank will give you 101 grams of gold after a year. (100grams + an additional 1 gram as interest).
o The scheme has a minimum tenure of a year.

Let us say you choose cash redemption

o You deposit 100 grams of gold with a bank. The bank pays 1% of interest on the deposit you make with them. The bank pays you cash worth a gram of gold after a year. You have to make your deposit for a minimum tenure of a year to draw the entire interest amounts. If you make a premature withdrawal (Withdraw the amount under a year) you will get a lesser amount of interest.

Benefits of gold monetization scheme:

o You can deposit your idle gold which is as less as 30 grams.
o You get interest in line with the gold price movements.
o You get interest on your gold savings within 30/60 days of opening your gold savings account.
o Your gold increases with time and your gains are not taxed.

What about taxes…

The returns you get from your gold deposit are likely to be exempt from wealth tax, capital gains tax and alsoincome tax. You must be wondering if you can deposit any amount of gold without being taxed. If you make gold deposits of over a crore then the tax department will certainly be interested.

What’s in it for banks….

o Banks make gold coins from the gold you lend to them and sell them for a profit.
o Banks will sell the gold abroad and get precious foreign exchange (Think Dollars) which they will lend to foreign exchange traders.
o Banks will lend gold to jewelers. Jewelers will pay the bank a high rate of interest on this gold. If the bank pays you an interest of 1% , then it will charge the jeweler 1.5%.The difference will be the banks profit.
o Banks have to compulsorily hold a proportion of their deposits with the RBI called cash reserve ratio (CRR). The banks must also invest a proportion of their deposits in Government securities called statutory liquidity ratio (SLR).Banks can use this gold to fulfill the CRR and SLR obligations.

What’s in it for banks….

o Banks make gold coins from the gold you lend to them and sell them for a profit.
o Banks will sell the gold abroad and get precious foreign exchange (Think Dollars) which they will lend to foreign exchange traders.
o Banks will lend gold to jewelers. Jewelers will pay the bank a high rate of interest on this gold. If the bank pays you an interest of 1% , then it will charge the jeweler 1.5%.The difference will be the banks profit.
o Banks have to compulsorily hold a proportion of their deposits with the RBI called cash reserve ratio (CRR). The banks must also invest a proportion of their deposits in Government securities called statutory liquidity ratio (SLR).Banks can use this gold to fulfill the CRR and SLR obligations.

What’s in it for the economy….

Your gold lying locked up in the cupboard is of no use to anyone including yourself. If this gold is brought into the economy India can save on its import bill. We import close to 800-1000 tonnes of gold a year and the Government has placed a heavy import duty to discourage what it regards as a worthless pursuit.

What’s the catch in the gold monetization scheme?

o The melting fee and the refining fee incurred at the testing center could be high. Who’s to bear this cost?
o Currently there are very few testing centers.
o Temples who have a lot of gold need to participate in the scheme.
o Proper quality check of the gold you get on redemption and a grievance cell to address any issues on the quality of the gold are needed.
You no longer need to keep your gold locked up in a bank locker paying locker fees. You can now earn interest on your gold under the gold monetization scheme.

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