Gold has always been considered a safe investment option, with countries and individuals trying their best to stock up on it. Today, given the unpredictability surrounding our economy, gold is perhaps the most sought after investment instrument, especially in the light of the recent Demonetization Policy implemented by the Government of India.
While Indians are known for their love for gold, a large number of us do not view gold as a proper tool of investment, with a majority of us purchasing it as ornaments to hand down from generation to generation.
This viewpoint, however, is changing, with people realizing the importance of gold as a tool in their investment portfolio.
Indians account for a huge portion of global gold consumption, but the country is still heavily dependent on imports to meet demands. Given this appetite for gold, the government is keen to provide an opportunity for those who wouldn't be able to afford it otherwise.
With gold prices linked to the market and the fact that rates have increased steadily over the last year, gold has become too expensive for most rural Indians, who have lost out on a great investment opportunity.
The Recurring Gold Deposit Scheme is an idea which is the Finance Ministry is currently considering, wherein the government aims to provide individuals who cannot afford gold an opportunity to invest small amounts to capitalize on the growth gold gives.
The scheme, which is yet to be implemented, would enable millions of Indians to open a gold recurring deposit account in post offices or banks, post which they can invest depending on their requirements.
The Recurring Gold Deposit Scheme aims to provide an investment opportunity to individuals who cannot afford to buy gold on account of the high prices. Given the fact that 1 gram of gold costs over Rs.3,000 , a number of people find it too expensive. This scheme is intended to provide such members of the society an option to invest smaller amounts, targeting rural India and those who belong to lower income groups.
Additionally, it also provides an opportunity for housewives and students to become a part of the investment world by spending small amounts on a regular basis.
The scheme, if implemented, would provide an opportunity for investors to spend anywhere between Rs.300 and Rs.500 a month towards the deposit.
Individuals who can afford more could increase the amount, but the minimum investment criteria is likely to be around the Rs.300 mark each month.
This amount should provide an opportunity for thousands of Indians to be a part of the gold dream.
The following steps will help us understand how the Recurring Gold Deposit Scheme works:
There will be no interest component in this scheme, with only the actual value of gold paid on maturity.
This scheme will provide scores of Indians from rural areas an opportunity to capitalize on the benefits of gold. While they would not physically own gold, they will be paid an amount equivalent to the gold weight accumulated in their account. The fact that they wouldn't need to dig into their savings to buy gold makes it ideal for individuals with limited resources. Additionally, since gold is considered a safe investment, this scheme ensures that limited financial means do not play spoilsport, boosting the economy and helping members grow their money over the years.
The Recurring Gold Deposit Scheme is yet to be implemented, with things in the planning stage. We could expect this scheme to be implemented once all formalities and ground work are completed, with experts of the opinion that the year 2017 could see this scheme being thrown open to the public. Also, once implemented, it is expected to be renamed as the "Sukanya Swarna Jama Yojana".
The table highlights the differences between these two schemes.
Parameter | Recurring Gold Deposit Scheme | Gold Bonds |
Target audience | Small depositors and individuals from rural India | Individuals with a means to afford gold |
Minimum investment amount (Rs.) | Rs.300 (tentative) | Amount equivalent to 1 gram of gold |
Interest | No interest will be paid | 2.50% p.a. |
Term | 10 years (tentative) | 8 years |
The Recurring Gold Deposit Scheme could change the way millions of Indians look at gold, helping them cash in on the gold rush.
The minimum deposit at any given time should consist of 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 deposits.
There are two gold deposit schemes: Medium-term Government Deposit (MTGD) with a maturity period of 5 years to 7 years and Long-term Government Deposit (LTGD) with a maturity period of 12 years to 15 years, both held by the bank on behalf of the Central Government of India.
The deposit's start date is when it is created, typically on the 30th day after the PVC receives the gold, initiating the accrual of interest.
Customers do not receive their gold in the same form as the jewellery or ornaments deposited; instead, the gold is melted and assayed by the PVC.
Customers receive interest in Indian Rupees only upon maturity of the deposit or annually on 31 March, whichever occurs earlier.
The bank enables customers to participate in Gold Deposit Schemes jointly by opening a Fixed Deposit in joint names.
The Gold Deposit Scheme permits customers to subscribe to it on behalf of a minor.
Resident Indians, including individuals, HUFs, trusts (including Mutual Funds or Exchange Traded Funds registered under SEBI regulations), and companies, are eligible to make deposits under the Gold Deposit Scheme.
The bank currently offers Medium-term and Long-term deposit schemes where redemption is possible only in Indian Rupees, as the bank accepts gold on behalf of the Central Government.
The bank issues a system-generated Gold Deposit Certificate to the customer upon the creation of the gold deposit, typically on the 30th day from the date of gold receipt at the PVC.
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