The Gold Monetisation Scheme (GMS) was set up by the Government in 2015 to induce people to deposit their physical gold with banks and earn interest on it. In a circular dated 6th June 2018, the RBI introduced some flexibility in the deposit period, and also specified premature withdrawal rules, besides some other key changes.
What is the Gold Monetisation Scheme?
This is a scheme that allows people to earn interest on their physical gold by depositing it in banks. It is not to be confused with the Sovereign Gold Bond scheme which lets you buy gold bonds instead of gold and earn interest on them (currently 2.5%). In the gold monetisation scheme, people can make deposits of 1-3 years (Short Term Bank Deposits or STCG), 5-7 years (Medium Term Government Deposits or MTGD) and 10-15 years (Long Term Government Deposits or LTGF). The investor has to get the gold tested by a ‘collection and purity testing centre’. The scheme only accepts gold deposits of 30 grams or more. You can read more about it here.
In its circular, the RBI has allowed deposits to be made for broken periods (eg: 5 years and 7 months or 10 years and 3 months) for all types of deposits under the scheme.
The RBI has permitted depositors to get their deposit maturity amounts in Indian rupees or gold. However, depositors who opt for gold will be charged a fee of 0.2% of the redemption amount as administrative charges. The interest amounts on the deposits will only be paid in rupees.
The RBI has also allowed premature withdrawal from these deposits. In such an event, the depositor will get an interest for the number of years completed and proportionate interest for the number of days completed where a full year hasn’t been completed. However premature withdrawal penalties will also apply. Here is how it will work:
MTGD deposits have a 5-7 year tenure but a lock-in of 3 years. The RBI has allowed premature withdrawal after the lock-in period. However, there will be a premature termination penalty of 0.375% for MTGD deposits withdrawn 3-5 years after inception and 0.25% for those withdrawn 5-7 years after commencement. MTGD Deposits have an annual interest rate of 2.25%. The penalty percentage will be deducted from this interest rate. Furthermore, the premature withdrawal amount will be paid only in rupees and not gold.
LTGD Deposits have a lock-in period of five years. Premature withdrawal will be allowed after the lock-in. The penalties for premature withdrawals are 0.25% for withdrawals 5-7 years and 12-15 years after commencement. For a withdrawal between 7-12 years, the penalty is 0.375%. LTGD have an annual interest rate of 2.5%. The penalty percentage will be deducted from this interest rate.