<div><strong>By Sunil Dhawan</strong><br><br><em>Three different gold schemes have been launched to keep the current account deposit under control by making Indians less reliable on gold imports. Here's a quick glance on what each scheme offers</em></div><div> </div><div>Gold! We Indians certainly cherish its possession. Almost every Indian household would own gold in some form or the other. But every time, we buy gold coins from banks as an investment or purchase jewellery as a wearable to be adored, there's a price that our government pays. </div><div> </div><div>In 2013, gold imports saw a huge increase thus pushing the current account deficit (CAD) to nearly $190 billion thereby prompting the government to hike its duty on imports to a record 10 per cent. The effect was evident as in 2014-15, India imported an estimated $34 billion of gold. In simple terms, CAD refer to excess of imports over exports thus leading to deficit. </div><div> </div><div>Indian exports haven't been promising and thanks to flat oil prices, the CAD may look to be tamed within limits this year. Putting a break on gold imports too can do the trick in controlling CAD which has come down substantially to around 1.3 per cent of GDP in 2014-15, as against around 4.8 per cent two years earlier. The country's total forex reserves as on October 23 stood at an all-time high of $351 billion.</div><div> </div><div>India is one of the largest consumers of gold in the world and imports as much as 800-1,000 tonnes of the metal each year, which is nearly 25 percent of the global demand. The stock of gold in India that is neither traded nor monetised is estimated to be over 20,000 tonnes.</div><div> </div><div><img alt="" src="http://bw-image.s3.amazonaws.com/WHY-YOU-SHOULD-BUY-GOLD-lrg.jpg" style="width: 411px; height: 283px;"></div><div> </div><div>Gold holds a prominent place in one's financial savings. The chart below highlights the fact that over 17 per cent of respondents invested in gold deposit schemes, gold coins and bullion, paper gold and gold accumulation plans much more than bonds, mutual funds and even insurance.</div><div> </div><div><img alt="" src="http://bw-image.s3.amazonaws.com/distribution-of-savings-lrg.jpg" style="width: 628px; height: 367px;"></div><div> </div><div>In order to monetize existing gold reserves, give an option to invest in paper gold and buy indigenously manufactured gold coins, government has today launched three different schemes - Gold Monetisation Scheme (GMS), Sovereign Gold Bond Scheme (SGB) and the Gold Coin and Bullion Scheme. Keyur Shah, CEO, Precious Metals Business, Muthoot Pappachan says, "The India Gold Coin and the Sovereign Gold Bond Scheme and Gold Monetisation Schemes launched by PM today is a historic moment giving it a very clear direction to Indian gold industry on the way forward. We are hopeful that these initiatives will bring out the "locker gold" into the formal sector as well as these gold certificates/bonds will help reduce India's over dependence on imports. There may be some initial implementation related challenges but as time goes by, once these schemes are also made available to the public via many more touch points e.g. banks, post offices, gold loan NBFCs, authorized jewellers it will have the desired good impact in long run".</div><div> </div><div><strong>GOLD MONETISATION SCHEME (GMS)</strong></div><div>Who all are allowed to invest: Only resident individual Indians are allowed to invest in the GMS. Joint deposits of two or more eligible depositors are also allowed under the scheme and the deposit in such case shall be credited to the joint deposit account opened in the name of such depositors. </div><div> </div><div><strong>How much of monetization:</strong> The minimum deposit at any one time shall be raw gold (bars, coins, jewellery excluding stones and other metals) equivalent to 30 grams of gold of 995 fineness. There is no maximum limit for deposit under the scheme. </div><div> </div><div><strong>Tenure:</strong> The designated banks will accept gold deposits under the short term (1-3 years) as well as medium (5-7 years) and long (12-15 years) term schemes. There will be provision for premature withdrawal subject to a minimum lock-in period and penalty to be determined by individual banks. </div><div> </div><div><strong>Interest:</strong> The designated banks are free to fix the interest rates on these deposits. The interest earned on it would be exempt from income tax as well as capital gains tax. The government has notified to offer a rate of 2.25 percent on medium-term deposits (5-7 years) and 2.5 per cent on long-term deposit (12-15 years).</div><div> </div><div><strong>On maturity:</strong> Redemption of principal and interest at maturity will, at the option of the depositor be either in Indian Rupee equivalent of the deposited gold and accrued interest based on the price of gold prevailing at the time of redemption, or in gold. </div><div> </div><div>The monetization involves opening an account with the bank and taking gold to the Collection and Purity Testing Centres (CPTC). Read <a href="http://businessworld.in/banking-finance-personal-finance/gold-monetisation-scheme-%E2%80%93-all-you-wish-know#sthash.pwwcM7IR.dpbs" target="_blank">here</a>, to know how CPTC would melt and value your gold. The ease including the accessibility and the entire process - from opening account to completing the CPTC formalities needs to be smooth enough to evince interest in gold monetization scheme.</div><div> </div><div><strong>SOVEREIGN GOLD BONDS</strong></div><div>Government has launched the sovereign gold bonds, 2015 scheme (SGB) for the benefit of those who wish to invest in gold. Rather than owning gold in physical form and keeping it idle without earning anything on it, GBS gives an opportunity to own gold and yet earn interest on it. </div><div> </div><div>The SGB's may be purchased through banks and post offices in the initial launch period from November 05, 2015 to November 20, 2015. Only resident Indians can invest a minimum of 2 gram and a maximum of 500 grams in a year either individually, jointly or in the name of minor as well. The bonds have a tenure of eight years with exit option from fifth year. The price as set by the government is Rs 2,684 for a gram of gold while the interest rate has been fixed at 2.75 per cent per annum payable half-yearly on the investment. <br> </div><div>Read <a href="https://www.sbi.co.in/portal/web/home/rbi-sovereign-gold-bond" target="_blank">here </a>what State Bank of India has to offer for the bonds.</div><div> </div><div>Know-your-customer (KYC) norms will be the same as that for purchase of physical gold. KYC documents such as Voter ID, Aadhaar Card/PAN or TAN /Passport will be required. A self-declaration to this effect will be obtained. A mechanism will be put in place for internal verification of the self-declarations. </div><div> </div><div>Interest on the Bonds is fully taxable as per the tax rate of investor. For someone in 10, 20, 30 per cent tax rate, the post-tax return come to 2.47 per cent, 2.18 per cent, 1.9 per cent respectively. On maturity, the difference in prices (buy and redemption price) may give rise to capital gains and it will be treated as that for physical gold i.e. tax of 10 per cent or 20 percent after indexation after holding for 36 months or more. </div><div> </div><div>Even though the interest rate being offered is marginal, it should help in owning paper-gold rather than physical gold which has its own concerns of cost of owning, purity, and security.</div><div> </div><div><strong>GOLD COIN SCHEME</strong></div><div>For those who would still want to buy gold coins, there's still an option. Instead of making Indians buy the imported coins, government has launched ingeniously minted coins which will have the National Emblem of Ashok Chakra engraved on one side and Mahatma Gandhi on the other side.<br> </div><div>Initially the coins will be available in denominations of 5 and 10 grams while the bullion will be for 20 gram. The Indian Cold coin & bullion will be of 24 karat purity and 999 fineness carrying advanced anti-counterfeit features and tamper proof packaging. All coins and bullion will be hallmarked as per the BIS standards. These coins will be distributed initially through designated and recognised MMTC outlets and later through specified bank branches and post offices.</div>
