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Is gold set to glitter with new schemes?

The government is hoping to succeed with the recently launched gold schemes by Prime Minister Modi.

twitter-logo Jinsy Mathew        Last Updated: December 3, 2015  | 14:37 IST
Photo: Images Bazaar
Photo: Images Bazaar

Last month, Prime Minster Narendra Modi launched two gold schemes- Gold Monetisation Scheme (GMS) and Sovereign Gold Bond (SGB), and India's first-ever gold coin. Given below are the nitty-gritties of the schemes.

 

Gold Monetisation Scheme

  • GMS aims at converting yellow metal assets lying idle into productive, interest bearing deposits. Under this scheme:
  • Gold can be deposited (minimum 30 grams) in any form, bullion or jewellery.
  • It will be collected at collection and purity testing centres, certified by the Bureau of Indian Standards.
  • The deposited gold will be melted into bars with the consent of the customer.
  • Deposit certificates will be issued by banks in equivalence of 995 fineness of gold.
  • For short term (1-3 years), interest rates would be decided by banks, denominated in grams of gold. Withdrawal can be in gold or rupees as mentioned at the time of deposit.
  • In case the customer wants to change the redemption option, it will be allowed at the bank's discretion.
  • The interest rate for medium term (5-7 years) is fixed at 2.25 per cent, and 2.50 per cent for long-term (12-15 years) deposits, by the government.
  • Interest will be payable in rupees, based on the value of gold deposited.
  • Interest earned will be exempt from income tax and capital gains tax.

 

Sovereign Gold Bonds Scheme

SGB aims at reducing demand for physical gold by channelising investment needs (bars, coins) into gold bonds.

  • It means instead of buying physical gold, one buys paper gold which bears sovereign guarantee.
  • Minimum investment is 2 grams while the maximum limit is 500 grams each year.
  • It has a tenure of eight years with a lock-in period of five years. On maturity, depositors have the option to extend the bond tenure for three or more years.
  • The interest rate (decided by the government) is 2.75 per cent per annum payable semiannually on the initial value of the gold at the time of investment.
  • Interest earned is taxable as per the tax bracket. Capital gains tax remains the same as in case of physical gold.
  • At the time of selling, settlement is done only in cash with the rate determined as per the average of previous week's traded price.
  • Total return offered by SGB depends on the movement in prices of gold.
  • There could be capital risk, if gold price declines.
  • SGB is more beneficial than gold ETF as there is no management fee and is free of risk of default in repayment.
  • There is no making charge or annual fee involved.

 

Indian gold coin

It's the first-ever national gold coin minted in India. It is not a gold scheme like the previous two.

 

Expert view

"Other than appreciation in gold price and 2.75 per cent interest provided by gold bonds, one also stands to gain an additional 1%, which is the expense ratio charged in ETFs."

Suresh Sadagopan, Founder of Ladder7 Financial Advisories.

Follow the writer on Twitter @jinsymathew


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