India is one of the largest consumers of gold in the world. However, a significant portion of this gold remains idle in households, temples, and institutions in the form of jewellery, coins, and bars. To address this issue, the Government of India introduced the Gold Monetisation Scheme (GMS).
The primary aim of the scheme is to reduce gold imports, mobilise unused gold, and strengthen the national economy. Moreover, the scheme allows individuals and institutions to deposit their physical gold with banks and earn interest, similar to a fixed deposit. As a result, gold becomes a productive financial asset rather than a dormant one.
This guide explains the Gold Monetisation Scheme in detail, including its objectives, benefits, interest rates, eligibility criteria, and working process.
What is the Gold Monetisation Scheme?
The Government of India launched the Gold Monetisation Scheme (GMS) in 2015 to bring idle gold into the formal financial system. Essentially, the scheme allows individuals to deposit unused gold with designated banks and earn interest on it.
The key objectives of the scheme include:
- Mobilising idle gold across the country
- Reducing dependence on gold imports
- Providing a secure way to earn returns on gold
- Integrating gold into the formal banking system
At maturity, depositors can receive either physical gold or its cash equivalent, depending on the chosen deposit type. Therefore, the scheme offers both security and flexibility.
Objectives of the Gold Monetisation Scheme
The government introduced the scheme to achieve multiple economic and financial goals. Specifically, the scheme aims to:
- Reduce gold imports that negatively impact India’s trade deficit
- Utilise idle gold lying with households and institutions
- Offer financial returns on gold holdings
- Support domestic jewellers by improving gold availability
- Strengthen the formal banking ecosystem
As a result, the scheme benefits both individual investors and the broader economy.
Types of Gold Monetisation Deposits
The Gold Monetisation Scheme offers three types of deposits based on tenure:
1. Short-Term Gold Deposit (STGD)
- Tenure: 1 to 3 years
- Interest payment: In Indian Rupees
- Principal repayment: Gold or cash (as chosen by depositor)
- Managed by: Banks
2. Medium Term Gold Deposit (MTGD)
- Tenure: 5 to 7 years
- Interest payment: In gold
- Principal repayment: Gold
- Managed by: Government of India
3. Long Term Gold Deposit (LTGD)
- Tenure: 12 to 15 years
- Interest payment: In gold
- Principal repayment: Gold
- Managed by: Government of India
Therefore, investors can choose a deposit based on their financial goals and time horizon.
Interest Rates Under the Gold Monetisation Scheme
Interest rates under the Gold Monetisation Scheme vary depending on the deposit type:
- Short Term Deposits:
- Interest rate is decided by banks
- Generally ranges between 0.5% to 1% per annum
- Medium and Long Term Deposits:
- Interest rates are notified by the government
- Usually around 2% to 2.5% per annum, paid in gold
Importantly, interest is calculated on the quantity of gold deposited, not on its rupee value. Consequently, returns depend on gold weight rather than market price fluctuations.
Eligibility Criteria for Gold Monetisation Scheme
The scheme is open to a wide range of participants, including:
Eligible Depositors
- Resident Indian individuals
- Hindu Undivided Families (HUFs)
- Trusts and charitable institutions
- Temples and religious institutions
- Companies and firms
Minimum Deposit Requirement
- Minimum deposit: 10 grams of raw gold
- Maximum deposit: No upper limit
Depositors can submit gold in the form of jewellery (without stones), gold coins, or gold bars. Therefore, most forms of household gold qualify under the scheme.
How the Gold Monetisation Scheme Works (Step-by-Step Guide)
The Gold Monetisation Scheme follows a transparent and regulated process. Below is a simple step-by-step explanation in paragraph form for better readability.
- Visit a Collection and Purity Testing Centre (CPTC)
First, the depositor visits a government-approved Collection and Purity Testing Centre (CPTC). The centre tests the gold for purity in the depositor’s presence, ensuring complete transparency. During this process, technicians remove stones and non-gold components, and the centre accepts only the pure gold content.
- Receive the Gold Deposit Certificate
After completing the purity test, the depositor receives an official gold purity certificate. Subsequently, the centre melts the gold and converts it into standard gold bars. This certificate confirms the exact gold content and makes the deposit eligible under the scheme.
- Open a Gold Deposit Account
Next, the depositor approaches a participating bank with the purity certificate. The bank then opens a Gold Deposit Account in the depositor’s name. This account records the quantity of gold rather than its monetary value, ensuring accurate tracking.
- Deposit and Interest Accrual
Once the bank credits the gold quantity to the account, interest starts accruing based on the selected tenure. As a result, idle gold begins generating returns without exposure to daily gold price movements.
- Maturity Settlement
Finally, upon maturity, the depositor receives the proceeds according to the chosen option. The bank settles the amount either in physical gold or its cash equivalent. Therefore, the scheme offers long-term benefits along with pay-out flexibility.
Tax Benefits Under the Gold Monetisation Scheme
The scheme provides several tax advantages, making it financially attractive:
- Capital gains tax: Exempt
- Wealth tax: Not applicable
- Income tax on interest: Depends on applicable tax laws
Because of these exemptions, the Gold Monetisation Scheme often proves more tax-efficient than holding physical gold at home.
Key Benefits of the Gold Monetisation Scheme
1. Earn Returns on Idle Gold
Gold that previously remained unused now generates steady returns.
2. Safe and Secure
The scheme eliminates risks related to theft and storage of physical gold.
3. Tax Efficiency
Exemptions from capital gains and wealth tax improve overall returns.
4. Supports the Economy
The scheme reduces gold imports and improves India’s current account balance.
5. Flexibility of Tenure
Multiple deposit tenures allow investors to align investments with financial goals.
Limitations of the Gold Monetisation Scheme
Despite its benefits, the scheme has certain limitations:
- Emotional attachment to jewellery may discourage participation
- The scheme melts jewellery, so the original form cannot be recovered
- Limited public awareness about the scheme
- Availability of CPTCs remains restricted to selected locations
Therefore, investors should evaluate these factors before investing.
Difference Between Gold Monetisation Scheme and Gold Bonds
| Feature | Gold Monetisation Scheme | Sovereign Gold Bonds |
|---|---|---|
| Form | Physical gold deposit | Paper/electronic |
| Interest | In gold or cash | Fixed cash interest |
| Gold required | Yes | No |
| Market risk | No price risk | Price-linked |
Conclusion
The Gold Monetisation Scheme offers a smart and secure way to put idle gold to productive use while earning assured interest under a government-backed framework. Instead of letting gold remain unused at home, this scheme allows you to convert it into a financial asset without selling it. Moreover, transparent purity testing, flexible tenures, and maturity options in gold or cash make it suitable for both short-term and long-term financial planning.
However, if your priority is quick liquidity rather than long-term returns, you may also explore modern alternatives such as Digital Gold Loan, which explains how you can leverage gold digitally without physical visits or lengthy paperwork. Ultimately, the right choice depends on whether your goal is wealth creation or instant access to funds.
Frequently Asked Questions (FAQs)
No. Jewellery is melted after purity testing and cannot be returned in its original form.
The minimum deposit is 10 grams of gold.
Capital gains and wealth tax are exempt. Interest taxation depends on prevailing income tax rules.
Premature withdrawal is allowed in some cases, subject to bank and scheme conditions.
Yes. The scheme is backed by the Government of India and implemented through authorised banks.
