Salient Features of the Gold Monetization Scheme
Salient Features of the Gold Monetization Scheme Gold has unique properties as an asset class. Modest allocations to the 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 the 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 a 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 demand, which will defeat the whole purpose of launching the scheme. Therefore, the government should control the gold deposits in Gold Savings Account. Salient Features of the Gold Monetization
The Reserve Bank of India issued directions to the banks on implementation of the gold scheme approved by the government with the objective of monetizing India’s 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 India’s 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 country’s dependence on gold imports. IPR INDIA
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 loans the raw material for the 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.
Any Resident Indian of the following categories-
- Individuals singly or jointly(as former or survivor).
- Hindu Undivided Families (HUFs).
The minimum quantity of deposit that can be kept is of 30 grams to encourage even small depositors. It is different from the earlier existing old 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 be initially launched at few locations because the government will have to first set up the infrastructure for facilitating easy and secure handling of gold.
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.
The interest rate has to be 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.
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.
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.
Rupee loans are available at any branch of SBI up to 75% of the notional value of gold.
It can be renewed any time after the 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 the near future.