Gold bonds & monetization schemes will soon be reality

Written on Friday, September 11, 2015
By Mohit Mittal- AVP & Head Fixed Income, Bajaj Capital Ltd.

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As an investor if you have been looking for safe paper investment in yellow metal, you have all the reasons to cheer as the government has approved sovereign gold bonds and other gold monetization schemes. This is a positive move to refrain people from buying physical gold for investment purpose. Currently, approx. 300 tons of physical gold in the form of bar and coins are purchased every year purely for investment purpose. This new scheme would add ease and security to the investment process allowing investors to park money in papers backed by gold.


Bonds: Gold bonds would allow people to invest up to 500 grams of gold in a financial year. Reserve Bank of India (RBI) would be issuing these bonds on behalf of government. As an investor you will buy certificates from government which you can later on encash for money or physical gold. To protect investors from medium term volatility, these bonds would have a minimum tenure of 5 to 7 years and would be available in denominations of 5,10,50 and 100 grams. Under the scheme you would have to invest a minimum of 30 grams to earn interest on the gold account.

Monetization Schemes: Gold monetization schemes will have a rate of interest to be decided by the government. Interest will be calculated on the value of gold deposited at the time of investment. Under monetization scheme, the customer gets his gold ornaments melted and purity assessed from one of the recognized centers. This gold is later passed to banks against which a certificate is issued. On maturity, the customer can redeem the gold value with a small interest.

Consider Investment in Gold Bonds

You should consider investment in gold bonds as-

-These bonds and schemes are backed by government of India; hence they are a secure investment.

-You no longer need to keep physical gold at your home or bank locker.

-Gold bonds can be kept as security to avail loans.

-They can be easily traded on exchanges allowing investor to exit early, if he needs money.

Things to Watch For

The KYC norms and capital gain taxes would be same as physical gold investment. Investment in bonds is an attractive option and you can definitely go for it. But, as far as monetization scheme is concerned, the interest rate on shorter-tenure gold deposits will be left to the banks to decide, on the basis of prevailing international lease rates and other costs. As an investor you would never want to settle for lower rate of interest currently being discussed that can be as low as 1 percent. Instead of earning such low returns, you would rather prefer keeping the jewelry at your home or in the bank locker. 

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