Gold Monetization Scheme: putting idle gold to work

Indian households hold a lot of gold that simply sits in lockers. The Gold Monetization Scheme tries to put some of it to use. This guide explains what the scheme is and how it works.

Quick answer

The Gold Monetization Scheme (GMS) lets you deposit your idle physical gold with a bank and earn interest on it, instead of letting it sit unused. The gold is assessed, melted and held as a deposit measured in grams. GMS aims to reduce gold imports by bringing household gold into the financial system. It is backed by the government and RBI.

Key takeaways

• GMS lets you deposit idle gold in a bank and earn interest.
• The gold is assessed, melted and held as a deposit in grams.
• It aims to reduce India's need to import gold.
• Interest and returns are usually linked to gold.
• The scheme is backed by the government and RBI.

What is the Gold Monetization Scheme?

The Gold Monetization Scheme, or GMS, is a government scheme that lets people deposit their physical gold with a bank and earn interest on it. The idea is to make idle gold productive instead of letting it sit in a locker.

Households and institutions in India hold large amounts of gold. GMS tries to bring some of this into the financial system, so it can be used rather than stored unused.

How does the Gold Monetization Scheme work?

You take your gold to an authorised centre, where it is tested for purity and weighed. The gold is then melted and its value recorded in grams of pure gold. The bank holds this as a gold deposit in your name.

You earn interest on the deposit, and at the end of the term you get back value based on gold, either as gold or its cash equivalent depending on the option chosen. So your return is linked to the price of gold plus interest.

Why did the government launch GMS?

India imports a large amount of gold every year, which affects the trade balance and the rupee. A big reason is that so much household gold sits idle rather than circulating in the economy.

By encouraging people to deposit idle gold, GMS aims to reduce the need for fresh imports. If banks can lend or use deposited gold, the country may import less, which helps the wider economy.

What should you keep in mind before using GMS?

An important point is that your gold is melted, so jewellery loses its form and any emotional or design value. GMS suits gold you hold purely as an asset, not pieces you want to keep as they are.

You should also check the minimum quantity, the available terms, the interest offered and the tax treatment, which can change. Because rules and rates vary, verify the current position and consult a professional before depositing significant gold.

How is GMS different from a gold ETF or SGB?

GMS uses your existing physical gold, turning it into an interest-earning deposit. A gold ETF or a Sovereign Gold Bond, by contrast, is a way to invest new money into gold exposure without holding metal at all.

So GMS is about making gold you already own productive, while ETFs and bonds are about gaining gold exposure with fresh investment. They serve different needs, and some people use a mix depending on their situation.

Frequently Asked Questions