Gold is one precious item that has been loved by Indian families and was not only a source of money but also of social and cultural importance. But the truth is most people have their gold ornaments, coins or bars lying in silence somewhere. The Gold Monetisation Scheme (GMS) is a step to generate money from that inactive asset. This article will cover the gold monetisation scheme concept, its functioning, purpose of its release, and the information that the bank depositors should have.
What is Gold Monetisation Scheme?
Gold monetisation scheme is a government program, which enables individuals and entities to deposit their unused gold in the form of bullion, bars, coins, or jewellery in the banks authorized by the government or collection/ testing centers. As a result, depositors can earn the interest of the gold they kept while the unused gold is mobilised for other productive uses. The scheme converts “sleeping” gold which is lying in the safes into a financial instrument.
Basically, the gold monetisation scheme facilitates the physical gold holders to transform their gold into the bank through which the gold is then refined, standardized and the depositors are given different options e.g. interest and/or redemption.
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Main Objective of Gold Monetisation Scheme
The main objective of gold monetisation scheme are multi fold:
- One of the main reasons for the implementation of the gold monetisation scheme was to mobilize the gold lying unused in households, trusts, and institutions all over the country and put it to productive use.
- Another objective is to reduce the need for gold imports in India by utilizing domestic gold reserves i.e. tapping the local market for balance of payments purposes.
- Also, the scheme gives depositors the opportunity to earn interest on gold rather than letting it remain inactive.
- Moreover, substantial changes in terms of transparency and efficiency injected into gold held by institutions (temple trusts or corporates, for instance) and broadened the financial base of the gold industry chain are some of the other goals of gold monetisation scheme.
Therefore, gold monetisation scheme is a good example of the alignment between individual asset management and national economic goals depositors are winners, and the country is benefitting by better utilisation of its gold resources.
Gold Monetisation Scheme Banks
Which banks offer gold monetisation scheme? The answer is: Banks designated in India. These authorised banks under the scheme accept gold deposits (under specified conditions) through certified Collection and Purity Testing Centres (CPTCs) or Bank branches.
As an instance, both State Bank of India (SBI) and HDFC Bank which are large scheduled commercial banks, have enrolled in the scheme.
A branch visit is always a good idea to verify if the gold monetisation scheme has been designated in your bank and as well know as the individual branch of the bank carries out the procedure (gold acceptance, testing, account opening, redemption options, etc.).
Gold Monetisation Scheme Interest Rate
The interest rate on deposited gold is one of the main points to consider when evaluating the gold monetisation scheme. The interest (or return) one gets depends on the duration, the type of deposit (short term versus medium/long term) and the terms of the bank, just like in any other deposit scheme.
In the past, the interest rate for gold monetisation scheme for medium and long term deposits was around 2.25 % to 2.50 % per annum.
According to the latest changes, the interest rate for short term bank deposits (STBD) is a little bit lower in one example: for a 1 year deposit 0.50 % p.a., for more than 1 year and up to 2 years 0.55 % p.a., and for more than 2 years and up to 3 years approximately 0.60 % p.a.
The minor contradiction is that while gold is a very valuable asset, the return under the gold monetisation scheme is low compared to other options. So depositors should consider the scheme as a means to get some return on an otherwise idle asset and not as a high return investment.
What is Gold Monetisation Scheme and How It Works?
Below is the gold monetisation scheme works in a step wise manner:
- Eligibility and gold deposit
You (an individual, HUF, institution, trust, etc) take your gold to a bank or one of its authorised Collection and Purity Testing Centre (CPTC). Gold can be one of these forms raw bars, coins or jewellery ( except for the parts with embedded stones or other metals) as per the norms of the scheme.
- Purity testing and refinement
The gold from the owner is tested for purity (most of the time it is refined to 995 fineness) and the quantity is also determined at the CPTC. The bank issues a certificate of gold deposit indicating the grams of gold credited to the account of the person.
- Account crediting and interest accrual
After the purity testing and once the gold is made into tradable bars/touchpoints, your gold deposit account (say under STBD or other tenor) is ready to use. The interest is calculated from the date of conversion or from the specified date (e.g. 30 days after receipt) whichever is earlier.
- Tenure and redemption options
The user chooses the tenure (1 3 years for STBD, earlier 5 7 years or 12 15 years for medium/long term schemes). When the time comes, the person may choose the option to redeem in the form of physical gold (bars/coins) or take the money/rupee equivalent of the deposited gold based on the value at maturity. For short term deposits, there is also an option for premature withdrawal (with penalty) after the minimum period has elapsed.
- Interest payment and principal repayment
The interest is paid yearly (or cumulative) in cash/rupee terms (or in gold equivalent as per specific terms, occasionally). The main (the gold) comes back (or its value) will be based on the prior decision and the regulations of the scheme along with the rules.
- Gold usage by bank/jewellers
The bank (or the refining system) utilizes the mobilised gold to carry out productive activities e.g. by lending the bank gold to jewellers, by converting the gold into metal loans or gold deposit certificates thus aimed at better usage domestic gold stock.
So the gold monetisation scheme is essentially functioning as a mechanism that connects gold which is lying idle and turning it into a financially productive deposit instrument with a defined process.
Current Features and Recent Updates
One must see to it that the present guidelines of the gold monetisation scheme are verified, as the government has changed some parts of the scheme. For example:
- The scheme was operational from September 2015.
- As per information available on 26 March 2025, the government deposit components of the scheme for the medium term and long term periods (5 7 years and 12 15 years) have been removed; only the short term bank deposit (1 3 years) segment is still active under the scheme.
- Minimum deposit amount: 10 grams of pure gold (bars, coins, or jewellery, except stones/other metals) in one go.
- There is no maximum deposit limit mentioned under the scheme.
Therefore, anyone who is thinking of investing in a gold monetisation scheme should be fully informed of the tenor, interest rate and the fact that certain segments have been discontinued.
Benefits and Considerations
Benefits
- An idle gold which does not bring you any benefit now, can be an interest bearing asset.
- Reduces your locker charges, storage risk, and provides you with a facility if you wish to get the gold or cash equivalent.
- Is very helpful to the country in terms of lessening the import of gold and better utilization of resources.
- It has tax benefits (in certain cases) under the provision of the scheme along with flexibility in redemption (depending on the option you choose).
Considerations
- The interest rate offered under the gold monetisation scheme is significantly lower when compared to other investment avenues; hence, it may not yield a return equivalent to that of equity or other instruments with high returns.
- In case of medium/long term segments (earlier in the scheme), you may not get your jewellery back in the same form that you had deposited; it may be in bars or coins.
- Sentimental value: Most people keep gold jewellery for emotional or cultural reasons, which the scheme may not allow if the gold is refined or altered.
- The value of the matured gold account depends on the market value of gold at the time of redemption if it is in cash equivalent. Also, there is the risk of an opportunity cost if the price of gold increases substantially.
- With the recent amendments, there is only a short term segment left, thus, deposit options for the long term are limited.
Who Should Consider the Gold Monetisation Scheme?
The scheme would be most relevant to the following individuals or entities:
- Those who have large amounts of gold (jewellery, coins, bars) lying around and not being used or worn, and are ready to deposit them for a fixed period in order to earn some return.
- Those who want a low risk option (since gold is a relatively stable asset) to get some yield, but without permanently selling the asset.
- Institutions, trusts, or temple bodies that have stockpiles of gold and want to earn interest or better utilisation of that gold.
- Those who are looking for a way to stop paying for storage/locker and converting their idle gold into something more productive.
If, however, the gold is actively being worn, used for jewellery, or held for pure appreciation or sentimental value, then the scheme may not be the right choice.
How to Get Started with the Scheme?
The gold monetisation scheme is simplified through a checklist looking like this:
- Pinpoint the gold you intend to deposit (make sure it fits the scheme’s standards: bars, coins, or jewellery without embedded stones or other metals).
- Select a bank which is willing to carry out the transaction under the scheme don’t forget that a bank branch authorised for deposit under the scheme should be the place where you go, and you should also know the CPTC or GMCTA for purity testing.
- Be acquainted with the prevailing interest rate for the appropriate period (1 3 years short term).
- Fulfil KYC formalities through the bank documentation.
- At the bank’s Collection & Purity Testing Centre, bank officials receive and test your gold; gold is purified to a standard fineness (normally 995).
- The bank credits your gold deposit account, and interest is facilitated to start accruing as per GMS terms.
- On maturity, as per your earlier decision, either get the physical gold equivalent or the cash equivalent of gold value plus interest.
- Remember, among other things, the lock in periods, premature withdrawal provisions, and redemption form (gold or rupee).
Conclusion
Gold monetisation scheme brings to the fore an avenue for both individuals and entities to convert their unproductive gold into a financial tool which yields returns. Although the returns (interest rates) are rather low, the main thing is that the scheme unlocks the untapped potential of gold which would have just been lying idle. By integrating personal asset management with global economic goals, gold monetisation scheme is a win win situation, albeit a subject of an informed and realistic evaluation of the needs, the tenure and the redemption options.
If you are a student or a young professional and are looking at different financial options, then this scheme might pique your interest in case you or your family hold gold which is not used much. It can be a stepping stone towards understanding diversified asset utilisation and getting to know the asset storage alternatives. Make sure that you compare the scheme with other investment options, take note of all the rules in force and, consult your bank before making a decision.
FAQs
Q.1.What is gold monetisation scheme?
Gold monetisation scheme is an initiative of the government where an individual or a company can deposit gold that is in the form of bars, coins, or jewelry (excluding certain metals or stones) in a bank that has been specially authorised. The bank refines the gold that is deposited and opens an account, interest is credited on the value of the gold, and at the end of the tenure, the depositor may either get the ore return it.
Q.2.Gold monetisation scheme under which ministry?
The Ministry of Finance through the Department of Economic Affairs (DEA), Government of Indiab handles the gold monetisation scheme.
Q.3.Which banks offer gold monetisation scheme?
Only certain scheduled commercial banks operating in India are allowed to accept deposits under the scheme. SBI and HDFC Bank are a few of the banks that are on board. It is always better to confirm the details of the scheme and the authorisation of your bank branch before proceeding.
Q.4.Gold monetisation scheme started in which year?
The government of India launched the gold monetisation scheme in September 2015.
Q.5.How gold monetisation scheme works?
The programme is implemented in these stages: deposit qualifying gold with a bank/CPTC; the gold undergoes testing/refining; the bank opens a gold deposit account and credits it; the interest amount keeps increasing; when the time period ends, the depositor can take the physical gold equivalent or cash equivalent. Banks or refiners get hold of the gold deposited for their recycled use.
Q.6.Why gold monetisation scheme?
The scheme not only allows the owners to earn interest on their gold that is just lying around and also helps them to save the cost of storages in the process of channeling gold for productive use, India keeps a lot of gold in the country that is just idle and not productive. It, therefore, helps to lower gold imports and at the same time optimises the use of domestic gold reserves.
Q.8.What is gold monetisation scheme in banks?
Gold monetisation scheme in banks is a banking product under which a bank invites gold deposit from eligible depositors, issues a certificate of deposit for the deposited gold, credits interest, and upon maturity allows withdrawal. From the bank’s point of view, the scheme entails referral to a CPTC/GMCTA, purity checking, refining, weighing of the deposited gold and recording the equivalent value in rupees as and when required.
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