Gold Monetization Scheme: Benefits, Interest & How It Works

Gold plays a special role in Indian culture and households. From jewellery to coins, gold is a symbol of wealth, security, and tradition. However, a lot of this gold is kept in lockers and is earning a zero return.

To address this issue, the Government of India started the Gold Monetisation Scheme (GMS). It enables people to earn interest from their dormant gold while helping the country reduce its gold imports.

In this detailed guide, we will guide you through:

- What is the gold monetisation scheme

- How the gold monetisation scheme India works

- Interest rates and time period

- Pros and cons of the scheme

- What distinguishes this scheme from other gold investment alternatives

- Is the scheme appropriate for you

What Is Gold Monetisation Scheme?

The gold Monetisation Scheme is a project of the Indian government whereby individuals are allowed to deposit their gold in the shape of either gold jewellery, coins and bars and get an interest in either gold or cash. Rather than having your gold in a locker, then you can invest in a gold deposit scheme.

Let's break it down:

Gold Monetisation scheme = earn interest on your physical gold

Gold Monetisation Scheme India: Why Was It Introduced?

Gold is one of the most sought-after commodities worldwide, and India is one of the largest consumers. Every year:

• Gold is imported in large quantities.

• It increases the trade deficit.

• Gold, which is kept idle, does not help the economy.

Thus, the gold monetisation scheme India aimed to:

• Mobilise the idle gold.

• Reduce gold imports.

• Provide alternatives to buying gold.

• Encourage the use of gold in more productive ways.
  
  

 

What Is GMS Scheme?

GMS scheme is short for Gold Monetisation Scheme. It was launched by the Government of India in 2015 in collaboration with banks and gold testing centres.

Under the scheme:

• Gold is deposited with the banks.

• The gold is tested and melted.

• The depositor earns interest.

• The gold can be redeemed after some time. Gold can be redeemed willingly at a later time.

• Unlike simply purchasing gold, this scheme focuses on gold utilization.
  
  

Gold Deposit Scheme Under GMS

The gold deposit scheme under GMS is fractionalised into three segments based on tenure:

1. Short-Term Gold Deposit (STGD)

Duration: 1 to 3 years.

Returns: ~0.5% - 1%.

2. Medium-Term Gold Deposit (MTGD)

Duration: 5 to 7 years.

Returns: ~2.25%.

Technically managed by the state.

3. Long-Term Gold Deposit (LTGD)

Duration: 12 to 15 years.

Returns: ~2.5%.

A long-term wealth planning vehicle.

How Gold Monetisation Scheme Works (With Examples)

Let us try to understand the gold monetisation scheme simplistically.

Step 1: Go to the Gold Collection and Purity Testing Centre (CPTC)

• Bring your gold (generally 10+ grams).

• Accepted gold items include jewellery, coins and bars.

• Gold purity is tested right in front of you.

Step 2: Gold Melting and Certification

• You will have gold melted.

• Determine the weight and purity of gold.

• A deposit receipt is provided to you.

Step 3: Open Gold Deposit Account

• Open a gold deposit scheme bank account.

• Go to a participating bank.

• You will need to submit your gold purity certificate.

Step 4: Earn Interest

• Interest is earned on the gold weight.

• Interest is paid annually.

Step 5: Redemption on Maturity

• You will receive the cash equivalent or gold bars and coins.

• Depends on the bank you choose and the scheme.
  
  

Interest Rates Under Gold Monetisation Scheme

Interest in the gold GMS scheme varies based on your scheme type and tenure:

Scheme Type	Tenure	Interest (Approx.)
Short-Term	1–3 years	0.5% – 1%
Medium-Term	5–7 years	~2.25%
Long-Term	12–15 years	~2.5%

Interest is usually based on the gold quantity, not its market value/rupee equivalent

Key Benefits of Gold Monetisation Scheme

The gold monetisation scheme has a number of rewarding advantages:

1. Earn Interest on Idle Gold

Gold that is simply kept in a locker will keep accumulating. The GMS turns your secured gold into an income-generating asset.

2. No Storage Risk

Once deposited:

• No locker charges.

• No theft risk.

• No insurance worry.
  
  

3. Tax Benefits

Interest earned is tax-free.

Capital gains on redemption are exempt.

Wealth tax is not applicable.

This makes the gold deposit scheme tax-efficient.

4. Helps Indian Economy

• Reduces gold imports.

• Improves the current account balance.

• Supports infrastructure and lending.
  
  

5. Safe Government-Backed Scheme

The GMS scheme is supported by:

• Government of India.

• Scheduled banks.

• RBI-regulated institutions.
  
  

Risks and Limitations of Gold Monetisation Scheme

No investment is perfect. GMS also has limitations.

1. Jewellery Is Melted

Once you deposit your jewellery, you will not receive the same pieces back. Consider the following:

- They will have to melt your jewellery.

- Your piece’s emotional value may be lost.

2. Limited Awareness & Centres

- The CPTCs are limited.

- The process can be extremely time-consuming.

3. Lower Returns Compared to Market Investments

Investments are lower than the following:

- Equity

- Mutual funds

- Long-term business investments.

4. Liquidity Issues

- Premature withdrawals may incur penalties.

• Investments are not suitable for short-term needs.
  
  

Gold Monetisation Scheme vs Other Gold Investment Options

We can examine the gold monetisation scheme, the sovereign gold scheme, and digital gold options.

Feature	Gold Monetization Scheme	Sovereign Gold Scheme (SGB)	Physical Gold
Uses existing gold	Yes	No	No
Interest income	Yes	Yes (2.5%)	No
Storage risk	No	No	Yes
Liquidity	Low	Medium	High
Emotional value	Lost	Not applicable	Retained

 

Gold Monetisation Scheme vs Sovereign Gold Scheme

A lot of people get the gold deposit scheme and the sovereign gold scheme mixed up.

Key Difference

- The Gold Monetisation Scheme allows you to use your existing gold.

- Sovereign Gold Scheme needs a fresh investment in gold bonds.

Both options are government-backed but have different objectives.

Who Should Invest in Gold Monetisation Scheme?

The gold monetisation scheme India is definitely suitable for:

• Individuals having gold ornaments stored idly in bank lockers.

• People with a long-term investment horizon.

• Individuals who do not require jewellery/ornaments to wear.

• Investors who want to save on taxes.

The scheme is not suitable for:

• Investors who may need cash in the short term.

• Those who have a sentimental value/attachment to the ornaments.

• People who have the notion of getting ultra-high returns.
  
  

How Much Gold Can Be Deposited?

Minimum: Generally 10 grams (may differ).

Maximum: No limit.

Gold has to be of legal acquisition.

This makes the GMS scheme convenient and practical for anyone looking to deposit gold.

 

Is Gold Monetisation Scheme Safe?

Yes, in financial terms:

• It is government-backed.

• It is with regulated banking institutions.

• It has a transparent system.

• However, there is an emotional risk from the jewellery.
  
  

Contribution of Gold Monetisation in Gold Investment India

In gold investment India, the GMS scheme serves:

• Not a substitute for purchasing gold

• Not replacing gold holdings

• It is an encouragement to the optimum use of a static gold asset

• It is part of India’s overarching gold policy.
  
  

Common Misconceptions Regarding the Gold Monetisation Scheme

These are the most common misconceptions:

• Gold has been and will be stolen.

• There are no returns to be had.

• Gold monetisation is only for the ultra-rich.

• It’s equivalent to purchasing gold.

These are simply myths.

Gold Monetisation Scheme Summary

The Gold Monetisation Scheme allows one to support the Indian Economy while earning interest on idle gold.

Is Monetisation Scheme Worth the Money?

For the right investor, yes

GMS works if-

1. There is Gold you do not use

2. You would like some safe, tax-free profits

3. You have long-term thinking

GMS does not work if-

1. There is a need for liquidity

2. There is a desire for substantial growth

3. There is a want of jewellery to stay unaltered

 

Conclusion

The gold monetisation scheme India is very clever turns inactive gold into a productive asset. With the GMS schemeone is capable of earning interest, forget about the possibility of storage, and get the added benefit of no taxes.

The gold deposit scheme should not be seen as a replacement for modern forms of investment like stocks and mutual funds, as it is a very good gold monetisation scheme india option for those people who wish to earn money with gold that is just lying about on gold.