Introduction of Gold Monetization Schemes

8/18/2019 Introduction of Gold Monetization Schemes

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EXECUTIVE SUMMARY

The study of Gold Schemes should help you answer three questions. Where you are today, that

is, your current personal balance sheet, where do you want to be tomorrow, that is,

finances linked to your goals, and what you must do to get there, that is, the asset allocation and

investment strategy that will help you achieve your objectives.

anaging an investment portfolio in today!s dynamic market scenario is a challenge for every

individual, who works hard to achieve the ultimate goal for preserving and generating wealth for

their future. "inancial markets are comple# and diverse enough that one can try and grow his

wealth in multiple ways. The greatest challenge in making an investment is knowing e#actlywhere to invest and when to invest in order to ma#imi$e the returns in long run.

%ne of the best and safest ways to invest is investing in fi#ed income investments. These are

normally in the form of stock & bonds issued by corporations or governments or from dividends

paid to shareholder!s by a corporation. 'ssues effecting fi#ed income are the credit worthiness or

default risk of the issuer and the yield earned by the holder.

'n order to achieve long term goals an individual requires patience, discipline and a deep

knowledge of macroeconomic trends. 'n an environment when an economy is growing, most

investments will tend to grow ( rise in value, which will in turn help making capital gains

relatively easy to come.

)sset allocation is much more difficult and crucial in a period when market is stagnant or there is

a contracting growth. *uring these times, the individuals need to monitor capital flows to know

which assets can maintain and grow their value over a period of time.

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'n order to grow the investments on a long term basis the investments should be diversified as it

will reduce the risk while preserving growth potential. 'nvestments, through a source of gain to

generate wealth from the e#isting wealth, includes various risks alongwith it.

'n order to preserve and generate wealth for future, an individual needs to learn about the

investment alternatives. ) broad investment planning is required and can be implemented by an

investor!s even in the early + !s. 't will help the investor to manage his funds wisely and meeting

his ( her future goals in a satisfactory manner.

BACKGROUND OF THE STUDY

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The -nion abinet chaired by the /rime inister, Shri 0arendra odi, gave its approval for

introduction of Gold %01T'S)T'%0 Schemes 2G S3, as announced in the -nion 4udget

+ 56758.

The objective of introducing the modifications in the schemes is to make the e#isting schemes

more effective and to broaden the ambit of the e#isting schemes from merely mobili$ing gold

held by households and institutions in the country to putting this gold into productive use. The

long7term objective which is sought through this arrangement is to reduce the country!s reliance

on the import of gold to meet domestic demand.

G S would benefit the 'ndian gems and jewellery sector which is a major contributor to 'ndia!s

e#ports. 'n fiscal year + 59756, gems and jewellery constituted 5+ per cent of 'ndia!s total

e#ports and the value of gold items alone was more than :5; billion

The mobili$ed gold will also supplement


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%ut of the ;;5 )ssaying and @allmarking entres spread across various parts of the country,

those which will meet criteria as specified by 4ureau of 'ndian Standards 24'S3 will be allowed

to act as ollection and /urity Testing 5 entres for purity of gold for the purpose of this

scheme. The minimum quantity of gold that a customer can bring is proposed to be set at ;

grains. Gold can be in any form 2bullion or jewellery3. The number of these centres is e#pected

to increase with time.

Gold Savi#$s A!!o%# &'

'n the revamped scheme, a Gold Savings )ccount will be opened by customers at any time, with

AB norms, as applicable. This account would be denominated in grams of gold.

T(a#s)e( o) Gold o Re)i#e(s&'

ollection and purity testing centres will send the gold to the refiners. The refiners will keep the

gold in their ware7houses, unless banks prefer to hold it themselves. "or the services provided by

the refiners, they will be paid a fee by the banks, as decided by them, mutually. The customer

will not be charged.

The banks will enter into a tripartite =egal )greement with refiners and ollection and /urity

Testing entres that are selected by them to be their partners in the scheme.

Te#%(e&'

The deposits under the revamped scheme can be made for a short7term period of 57; years 2with

a roll out in multiples of one year3C a medium7term period of 67D years and a long7term period, of

5+756 years 2as decided from time to time3. =ike a fi#ed deposit, breaking of lock7in period will

be allowed in either of the options and there would be a penalty on premature redemption

2including part withdrawal3.

I# e(es (a e&'

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The amount of interest rate payable for deposits made for the short7term period would be decided

by banks on basis of prevailing international lease rates, other costs, market conditions etc. and

will be denominated in grams of gold. "or the medium and long7term deposits, the rate of

interest 2and fees to be paid to the bank for their services3 will be decided by the government, in

consultation with the


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'ndia is the second7largest buyer of gold across the globe. Thus, the changes in demand patterns

from the country may likely have an impact on the prices of gold. Gold futures on % 1E, a

commodity division of the 0ew Bork ercantile 1#change, has lost 5.F on a BT* 2year7to7

date3 basis. Silver futures have marginally gained .89 . Whereas, platinum and palladium fell

by 5D.6 and 5;.9 , respectively. The ectors Gold iners 1T" 2G*E3

BACK GROUND OF TO,IC

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Ho/ Do Fl%! %a io#s I# T"e Gold Ra e A))e! T"e I#dia# E!o#om+.

'ndians are hungry for gold. Whether it!s for investments, gifts, as tribute to deities, weddings or

any festive occasion, gold is an important part of the equation.

Gold is considered to be a symbol of prosperity, good fortune and has an inherent value in terms

of purity and wealth. )ccording to reports, 'ndians in 'ndia hold more gold than any other

population in any other country. While the reasons for this are many, the fact remains that

'ndians buy and hold gold as a cultural norm.

This insatiable hunger for gold has resulted in 'ndia!s gold imports constituting a massive

5+.6 of its total imports in + 5+75;, which is a whopping :85,9 F million dollars. 'n + 5+,

the total gold production in the world stood at 9,5; tonnes, and 'ndia imported +8.5+ of that

25, DF tonnes3 J one fourth of the world!s total gold production.

) country!s e#ports must be more than its imports to maintain a favourable balance and grow the

per7capita income of the country. )s of *ecember + 5+, we have a current account deficit of

8.D 2e#perts, analysts and the


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Gold is used in 'ndia as a form of tackling inflation, and holding an item with an intrinsic value

because of its rarity is a good way to counter the fluctuations in fiat currency. )s a traditional

form of savings in 'ndia, gold instils a feeling of comfort and security in a person!s wealth. This

has been termed the Le#posure effectM by psychologists.

While holding financial gold and gold in the form of 1T"s and 17gold is a prudent investment,

holding physical gold in the form of a real asset is preferred for the simple reason that it can be

held, felt and kept safe in a bo#. This e#perience of physically owning gold is important to

'ndians, and is another reason why we like gold so much J it!s safer in terms of real value than

the


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)cts as simple as purchasing gold as an investment affects the condition of the economy, as at

least one million other 'ndians are purchasing gold on the same day for the same reason,

somewhere else in 'ndia. onsider investing in other mediums and vehicles that will offer you

e#cellent returns on your investment, you might just be saving the economy.

Ho/ does $old i#ves me# a))e! "e I#dia# e!o#om+.

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So here 'Nm assuming we are referring to OinvestmentO made by the consumer and not the part of

government spending.

4ased on this, following are the ripple effects?

01 A# i#!(ease i# C%((e# A!!o%# De)i!i & )s we know, gold bullion and raw form is

used for minting currency. The more a country purchases gold, the more the reserves dry up

leaving the metal scarce in governmentNs treasury. This needs to be noted from the fact that any

slump(hike in sense# is accompanied sooner or later by change in price of gold.

21 Hi3e i# i# e(#a io#al p(i!es& *uring the -/) rule, K ?+ rule was launched under

which for every amount of gold imported + had to be e#ported. The point being the more the

demand, the more would be the hike in price following the simple demand price rule. Given thatwe 'ndians have a fetish for gold, gold lies idle stacked up at house feeling happy that the gold

prices are skyrocketting. This is , in a way, hoarding of resource.

41 D(ai# )o(ei$# (ese(ve& This is interlinked with the )* mentioned in point 5. uch like

crude oil, rightly called black gold, a country has to dish out money in -S* to procure the

commodity.

The recent sovereign bond scheme launched by Government of 'ndia addresses these problems by making consumer earn interest on bonds.

'ndian investors had been keen on investing in gold since the last economic downturn. The basic

reason being that they were loosing confidence in the other asset classes. The demand for gold

shot up as the market speculation worked in favor of gold and not because of demand due to its

intrinsic value. 'nvestors also found gold as a hedging option against the then weakening

currency.

"rom the countryNs economic standpoint this was bad. 't triggered the )*2 urrent )ccount

*eficit3 to go up as the gold had to be imported to meet the demand. This did have cascading

impact on inflation as the import further weakened the currency and this resulted in paying

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higher prices for oil imports. @igher oil prices directly got translated to price hike2inflation3.

Government needed to bear the hike in oil prices by subsidi$ing and that made the "*2"iscal

*eficit3 to shoot up, which had negative impact on countryNs economy. 1ventually, mounting of

fiscal deficit and inflation stagnated the growth, same time giving no room for the central bank to

ease the interest rates due to inflation. The long term implications were e#perienced in the form

of stagflation2gold import is not the only reason3.

Gold price has been dropping down since the formation of new govt as the investors are gaining

back confidence in the revival of the economy and they are finding new avenues of investments

other than gold. This is definitely a positive move that could strengthen the economy.

While gold investment does affect urrent )ccount *eficit, itNs a myth that 1T" gold investment

will not have the same effect.

1T"s are mandated by law 2S14'3 to buy gold or equivalent contracts for the money invested

with them 2minus the operations cost3. The source can be domestic or international market

depending where the supply lies. They donNt keep buying indefinitely 7 they just buy small

amounts at higher price pushing up the price of gold. 'n this era of open markets, obviously it

makes no sense to buy at higher price domestically what is available at cheaper priceinternationally. 'n fact, 4S1 is more fair in gold price than your neighborhood jewelerPP The fact

that gold supply is limited is the reason it has been used as a currency base for millenia. 'n that

sense, gold investment whether in physical or paper form has the same effect on )*.

Gold is a hedge against inflation. 'mporting gold is not as bad as importing a T> or a cell phone.

Gold acts as a sponge for disposable income which would otherwise be spent on non productive

consumption anyway.

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%ne canNt assume that a long term decline in gold purchase habit of 'ndians would necessarily

lead to a stronger rupee. The room created by fall in gold purchases, could be replaced by higher

imports.

4esides, a weaker rupee, boosts domestic production and improves e#ports.

=ook at hina, it has artificially undervalued its currency.


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5016 U#de( medi%m a#d lo#$' e(m deposi &

2i3. )uctioning.

2ii3.


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When a gold loan is sanctioned, the jewellers will receive physical delivery of gold from

refiners. The banks will, in turn, make the requisite entry in the jewellers! Gold =oan )ccount.

'nterest received by banks? The interest rate charged on the G = will be decided by banks, with

guidance from the


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'n a move to reduce the demand for physical gold, /rime inister 0arendra odi on Thursday

launched three gold related schemes, including Q'ndia gold coin! bearing )shok hakra, gold

monetisation and sovereign gold bond schemes to tap the festive season ahead of *hanteras and

*iwali.

The gold monetisation schemes 2G S3 aims to tap household gold stocks of around ++,

tonnes, the sovereign bond scheme would help shift part of the estimated ; tonnes of physical

gold bars and coins purchased every year in the country for investment into the demat gold

bonds.

*e a3e a loo3 a all "(ee s!"emes&

Gold !oi#s

7The coins will be available in denominations of 6 and 5 grams. ) + gram bar or bullion will

also be available. )bout 56, coins of 6 gm, + , coins of 5 gm and ;,D6 gold bullions

will be made available through T outlets.

7The 'ndian Gold coin is unique in many aspects and will carry advanced anti7counterfeit

features and tamper proof packaging that will aid easy recycling.

7These coins will be distributed through designated and recognised T outlets.

Gold Mo#e isa io# S!"eme


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J 'nterest rate on edium and =ong Term Government *eposit 2 =TG*3 are +.+6 per cent and

+.+ per cent, respectively.

J The tenor of medium term would be between 67D years while long term would for 5+756 years

tenure.

J The deposit under =TG* category will be accepted by the designated banks on behalf of the

central government.

7'nterest on deposits under the scheme will start accruing from the date of conversion of gold

deposited into tradable gold bars after refinement or ; days after the receipt of gold at the

ollection and /urity Testing entres 2 /T 3 or the bank!s designated branch, as the case may

be and whichever is earlier.

J The principal and interest of the deposit under the scheme will be denominated in gold.

J The gold received under =TG* will be auctioned by the agencies notified by the governmentand the sale proceeds will be credited to government!s account held with


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doesn!t tarnish, alloys well with other metals and is easy to work into wires or sheets. 0ot to mention,

gold is unrivaled in its natural brilliant luster and glossy shine. 4ecause of these unique properties, gold

makes its ways into almost every sphere of modern life in some way, shape or form.

He(e a(e "e ; mos !ommo# %ses )o( $old i# "e /o(ld oda+&

@e/el(+&

)bout DK of gold consumed each year is made into jewelry. Iewelry is the most common way gold

reaches consumers, and has been a primary use for the metal in various cultures. 4ecause of its beautiful

and durable properties, gold jewelry is an adornment that is both ethereal and revered. 1specially in 'ndia,

adorning the body with gold is a way to attract wealth and blessings.

Fi#a#!es a#d I#ves i#$&

4ecause gold is so rare and highly valued, this precious metal makes a natural currency, and has for at

least 8, years. The -.S. used to hold all its monetary currency to a gold standard, and since the turn of

the millennium, gold value has been on the rise in the stock market. 'n an uncertain economy, gold has

emerged as a possible financial staple. %ne of the most common ways to hold or invest in gold is in gold

coins, gold bars, also gold bullion. ) gold '


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probably continue to be the best option for replacing broken or missing teeth. 'n the medical field, small

amounts of gold isotopes are used in certain radiation treatments and diagnosis.

Ae(ospa!e&

'n the aerospace industry where reliable and effective technologies are key to survival, gold plays an

essential role. Gold is used to lubricate mechanical parts, conduct electricity and coat the insides of space

vehicles to protect people inside from infrared radiation and heat.

Medals a#d A/a(ds&

)s a highly esteemed precious metal, gold makes a natural appearance in crowns, awards and religious

statues. 4ecause of its unparalleled beautiful qualities and rarity, gold is one of the highest status symbols.

'n everything from )cademy )wards to %lympic medals, gold is recogni$ed for its admirable qualities

and it holds a permanent place of value in humanity!s eyes.

Sove(ei$# Gold Bo#d

'nstead of buying gold in physical form investors can park their money in bonds which are

backed by gold. The bonds will be available both in demat and paper form. Sovereign Gold 4ond

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has more or equal advantage against the physical gold. The bond will be issued by


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J The borrowing through issuance of 4ond will form part of market borrowing programme of

Government.

J 4onds can be used as collateral for loans. The loan7to7value 2=T>3 ratio is to be set equal to

ordinary gold loan mandated by the oter '*, )adhaar ard(/)0 or T)0 (/assport will be required.

7The interest on Gold 4onds shall be ta#able as per the provision of 'ncome Ta# )ct, 5F85 29; of

5F853 and the capital gains ta# shall also remain same as in the case of physical gold. 4onds will

be tradable on e#changes(0*S7% from a date to be notified by


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+. The country has amassed about + , tonnes of gold worth over :K billion 2


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STATEMENT OF THE ,ROB:EM

This Study will help us to understand the consumer!s perception about Gold Schemes by /

0arendra odi. This study will help the companies to understand, how a consumer selects,

organi$es and interprets the Ruality of service and product offered by Government.

NEED FOR THE STUDY

53 The deeper the Government understands of consumer!s needs and perception, the earlier the

product is introduced, the greater the e#pected contribution margin. @ence the study is very

important.

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+3 onsumer markets and consumer buying behavior can be understood before sound product

and marketing plans are developed

;3 This study will help Government to customi$e the service and product, according to the

consumer!s need.

93 This study will also help the Government to understand the e#perience and e#pectations of the

e#isting customers.

SCO,E OF THE STUDY

The opening of gold deposit accounts shall be subject to the same rules with regard to customer

identification as are applicable to any other deposit account. *epositors who do not already have

any other account with the designated bank, shall open a gold deposit account with the

designated banks with $ero balance at any time prior to tendering gold at the /T after complying with AB norms as prescribed by


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at the /T , regardless of whether the depositor submits the receipt for issuance of the deposit

certificate or not.

The objective of introducing the modifications in the schemes is to make the e#isting schemes

more effective and to broaden the ambit of the e#isting schemes from merely mobili$ing gold

held by households and institutions in the country to putting this gold into productive use. The

long7term objective which is sought through this arrangement is to reduce the countryNs reliance

on the import of gold to meet domestic demand.

OB@ECTIVES OF THE STUDY

%ne of the objectives of a Gold %01T'S)T'%0 Scheme is to unlock the value of this non7

productive asset. The unlocked value can be routed(circulated to productive assets like


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this scheme are to mobili$e the gold stored in households and institutions across the country,

allow jewellers to borrow gold as raw material easily, and allow for less import requirements of

gold.

RESEARCH METHODO:OGY

INTRODUCTION&

ethodology is a systematic way of solving a problem it includes the researchmethods for solving a problem it includes the research methods for solving the problem.

Type of research 7 *escriptive research

*ata source 7/rimary and Secondary data

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*ata collection method 7'nterview and survey

*ata collection tools 7Ruestionnaires

Sample si$e 796

DATA SOURCE

The task of data collection begins after a research problem has been defined. 'n this study

data was collected through both primary and secondary data source.

A6 ,RIMARY DATA

) primary data is a data, which is collected for gathering information first time and to

analy$e the problem. 'n this study the primary data was collected among the consumers usingquestionnaire.

B6 SECONDARY DATA

Secondary data consist of information that already e#ists somewhere, having been

collected for some other purpose. 'n this study secondary data was collected from company

websites, maga$ines and brochures.

SAM,:E DESIGN

The target population of the study consists of various respondents of various places.

This survey was done by collecting the data from the respondents.

SAM,:E SI E

)fter due consultation with the company supervisor as well as with the college guide,

also keeping in mind the requirements of the company for the research, the sample si$e that was

found to be appropriate for the study was 96.

SAM,:ING METHOD

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The sampling technique that adapted to conduct the survey was Q onvenient


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"rom the sample si$e of 96, ;9 samples were aware about the scheme which is a good indication,

but the other 55 were not aware. This also indicates that awareness of the same needs to be done.

A#ova& Si#$le Fa! o(S- )


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The population for this question was 96. The question was answered by the same sample,

the outcome of the same was that ;+ samples agreed with the question and out of 96, 5;

disagreed with the same. This shows although the scheme was launched more then ;

did not agree with the same.



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Groups Count Sum Average Variance


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The sample si$e was 96, out of the total sample more than K of the population agree with the

question, that is ;6 samples said yes and the rest 5 samples did not agree with the question. This

also indicates that from the research done on the restricted group still more than K of the

population believe that banks are safe, and gold scheme subscription will be trustworthy.



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The total sample of 96, out of which +8 samples agreed that due to launch of such scheme 'ndian

economy will improve. The conditions will help 'ndia for betterment of 'ndian economy

resulting in rapid growth of the economy. While on the other hand 5; samples still felt that the

'ndian economy will not improve with the launch of such scheme. )nd the remaining 8 felt

neutral, that is neither yes or no.



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6. What is the rationale behind such scheme

This talks about the thought process of the sample taken into consideration. %ut of 96 sample

si$e, 5+ believed that such launch of scheme will help to put the additional gold( surplus gold

into productive use. =ater 5 of the population had an opinion that the launch of such schemewill reduce government!s borrowing cost, which indeed is one of the vital motive behind this

scheme launch.

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8. This scheme can be replaced with

The question felt the need of other alternative product that can be used in order to replace gold.

The population reaction for such issue was 5+ samples had an replacement with silver followed

by F samples in savings, K with bonds and so on.

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D. Tick the


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"ow 1 4 45 11.25 566

"ow 2 4 45 11.25 191.5

"ow 3 4 45 11.25 161.5

"ow 4 4 45 11.25 141.5

ANOVA

Source of Variation SS df MS F

Between Groups 0 7 0 0

Within Groups 5568 10 259.4 Tot ! 5568 10 P-value F crit 1 2.620654

The F Value is much less than the critical or table value which shows that customers consider all

the attributes as important while rating their satisfaction. Therefore the hypothesis that customers

consider all the attributes important while rating their satisfaction stands accepted. The difference

in the sample is due to random sampling error.

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K.


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HO* GO:D SCHEMES *ORK FOR INDIANS AND INDIA

While launching the gold schemes /rime inister 0arendra odi pointed to womenempowerment implicit in gold. ) day later he addressed the *elhi 1conomic onclave. 0oting

'ndia!s cultural affinity for gold, he made five points on the 'ndian gold economy. %ne, the

Qmicro economic virtue! of gold can become the Qmacro economic vice! of high gold imports.

Two, the gold schemes turn dead money locked in gold towards productive purposes. Three, gold

schemes will provide, besides protection against inflation, modest interest without holding gold

on hand. "our, when the schemes reach their potential, they will help meet the rational

e#pectations of the people and moderate gold imports. "ive, the schemes are reforms which have

the potential to transform.

Femi#i#e e!o#omi!s

What the /rime inister did not say but should have is that the gold schemes unveiled are

entirely indigenous in thought and conception. 'n the -S(West masculine approach to gold, such

a feminine economic view of gold would have been laughed out. The 'ndian economy is

feminine in its soul. @igh savings, moderate consumption, risk7free investments and family

structure all point to the feminine character of the 'ndian economy. odern economics ismasculine. The gold schemes are in line with the philosophy of 0'T' )ayog. odi!s cabinet

directs the 0'T' )ayog Lto $ero in on what will work in and for 'ndiaM. The odi cabinet

cautions the new thinktank that, L0o single model can be transplanted from outside into the

'ndian scenarioM and says, LWe need to find our own strategy for growthM.

@ow do the three gold schemes work for the people at the micro level and the nation at the

macro level

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Gold Deposi s

The gold stock in 'ndia is estimated at between ++, tons to as much as 9 , tons. 'n the last

5K years 25FFD7+ 563 alone, 'ndia!s gold imports have topped 56, tons. Studies show that a

third of the imports, 6, tons, is for investment and not ornaments. 't means that some 6,

tons should be in the form of coins, bars or biscuits. The value of 6, tons is over :58 billion

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Sove(ei$# Bo#ds

0e#t is the sovereign gold bond scheme with different maturities. -nder the bonds scheme the

person who buys the bonds, in substance, buys gold. 'f somebody needs +6 sovereigns of gold

for a wedding years later, instead of buying gold and putting it in a safe vault, he can buy the

sovereign bond with a maturity of 5 years by paying the gold value today. %n maturity he will

get in cash the value of the gold at that time, so that he can buy +6 sovereigns in the market. @e

would earn interest of +.D6 per cent per annum which he could not have if he had brought gold

instead of bonds. 4ut the ma#imum limit upto which a single person can buy is 6 grams. The


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4anks are also putting in place the requisite systems and procedures to implement the scheme.

The e#act date of implementation will be announced by


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What type of gold can be deposited? 'ndividual!s can deposit gold bars, coins, and jewelleries.

@owever if the jewelry has embedded stones then it cannot be deposited.

Tenure? 'nvestors are offered following three types of deposits or tenure options as a part of this

gold %01T'S)T'%0 scheme?

1. S"o( e(m e#%(e& Ma %(es ?e /ee# 0'4 +ea(s

2. Medi%m e(m e#%(e& Ma %(es ?e /ee# 9'< +ea(s

3. :o#$ e(m e#%(e& Ma %(es ?e /ee# 02'09 +ea(s

'nterest


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,ROCESS OF DE,OSIT

5. *ocuments required for account opening? )ll the documents for verification i.e. know

your customer 2AB 3 would be required i.e. address proof, '* proof and passport si$e

photograph. 'f more documents are required then the same would be asked by therespective banks.

+. %nce verification is done, depositor will have to approach the government authori$ed

ollection and /urity Testing entres 2 /T 3. 4anks will provide this list to the depositor.

;. /T will then perform a detailed assessment of the gold and upon successful

verification they will issue a receipt which is signed by the authori$ed signatories of their

center.

9. *epositor will then have to submit the receipt in the bank. They will issue a final depositcertificate to the depositor which will also contain the tenure for which the deposit is

made.

6. @ow will the principal and interest get credited 't will be credited in the deposit account

of the individual.

8. Grievance


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)s i highlighted in my post, *ream @ome vs Gold J /roductive vs 0on7/roductive )sset that

Gold is a 0on7/roductive )sset. )t best, Gold in a financial portfolio act as a hedge against

inflation. 't should not be more than 56 7+ of the financial portfolio. )ccording to rough

estimates, 'ndian household and other trusts are holding + , tonnes of Gold. 't is not a good

scenario for any economy. %ne of the objectives of a Gold %01T'S)T'%0 Scheme is to

unlock the value of this non7productive asset. The unlocked value can be routed(circulated to

productive assets like


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't!s a known fact that Gold &


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'f Gold %01T'S)T'%0 Scheme is successful then there will be a sudden increase in the

supply of gold which in turn will decrease the Gold /rice. Therefore, Gold %01T'S)T'%0

Scheme is a good news for people who are waiting to buy gold at the lower price provided the

scheme is a success. 't has a flip side also. The drop in Gold price may result in out of proportion

increase the demand which will defeat the whole purpose of launching this scheme. Therefore,

the government should control the gold deposits in Gold Savings )ccount.

Co#!l%sio#& 't will be interesting to note how the govt will handle the black money converted

to gold. Whether Gold %01T'S)T'%0 Scheme will be sort of amnesty scheme for general

public to declare unaccounted gold lying in the lockers. Secondly, Gold is a Women!s best friend

and is mostly in the form of jewellery. )t the time of purchase, jewelers cheat and the final cost

is almost + 7+6 higher compared to the actual cost due to making charges, wastage etc. 'highlighted in my post, @ow Iewellers heat ustomers . Therefore, it will be a double penalty if

the ornaments and jewellery will be deposited under Gold Savings )ccount as the investor will

receive only Gold >alue.

GO:D MONETISATION SCHEME TO HE:, INDIVIDUA:S EARN

INTEREST ON GO:D BARS @E*E::ERY DE,OSITS56

http://www.nitinbhatia.in/personal-finance/how-jewellers-cheat-customers/http://www.nitinbhatia.in/personal-finance/how-jewellers-cheat-customers/


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'n an attempt to cut down the import bill, the


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The government has modified the gold monetisation scheme in a bid to make it more attractive.

The finance ministry on Sunday said the government will pay banks a +.6 per cent commission

for mobilising gold under the scheme and depositors will be permitted premature withdrawal of

gold.

O't is e#pected that modifications will make the scheme more attractive for potential depositors,O

said a statement announcing multiple changes.

The scheme, designed to bring out some of the estimated + , tonne of domestic gold to

reduce imports, has so far mobilised F kg of gold.

-nder new rules, banks will get a few incentives for gold purity testing charges, refining, storage

and transportation charges and other costs. O1ffectively, banks would be getting a +.6 per cent

commission, which will include charges payable to collection and purity testing centres(refiners,O

the statement said.

*epositors will earn up to +.6 per cent interest per annum on deposit and, under new rules, they

will be allowed premature withdrawal. O) mediumterm deposit will be allowed to be withdrawn

after three years and longterm deposit after five years. These will be subject to a reduction in the

interest payable,O the statement added.

"urther, depositors can now give their gold directly to the refiner rather than only through

collection and purity testing centres. OThis will encourage the bulk depositors, including

institutions, to participate in the scheme,O it added. 4ureau of 'ndian Standards has also modified

licensing condition for refiners from the e#isting three years of refining e#perience to one year.

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Ho/ does "e $old mo#e i-a io# s!"eme a##o%#!ed i# "e U#io# B%d$e 2 09 /o(3.

Ho/ /ill "e )%#ds ?e "a#dled so "a "e i#!(ease i# $old p(i!es does #o ?(i#$ a

"%$e loss o "e $ove(#me# .

The -nion abinet recently approved gold moneti$ation scheme and Sovereign Gold 4onds. Theain objective behind the launch of gold moneti$ation scheme and Sovereign Gold 4onds is to

reuse the household gold which lying in lockers & cupboards of 'ndian homes. and also reduce

reliance on import of gold.

This gold moneti$ation scheme and Sovereign Gold 4onds scheme will help in reducing the

demand for physical gold. )s we know most of the demand for gold in country is met through

imports, this scheme will help in maintaining 'ndia!s urrent )ccount *eficit in limits.

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arkets regulator Sebi today allowed gold e#change7traded funds 21T"s3 to invest up to + per

cent of their assets in the governmentNs ambitious Gold onetisation Scheme.

The government, in 0ovember, launched gold monetisation scheme to rein in demand for

physical gold and contain its import.

Through the Gold onetisation Scheme 2G S3, gold in any form can be deposited with banks

for a period of 57756 years that will earn interest while redemption will be at the prevailing alue

at the end of the tenure.

The new scheme will replace the Gold *eposit Scheme 2G*S3 5FFF 2G*S3. @owever, the

deposits outstanding under the G*S will be allowed to run till maturity unless these arewithdrawn by the depositors prematurely.

The Securities and 1#change 4oard of 'ndia 2Sebi3 said e#isting investments by Gold 1T"s of

utual "unds under the G*S will be allowed to run till maturity unless these are withdrawn

prematurely.

Gold 1T"s are open7ended funds that trade on a stock e#change like any other share of a

company and track closely the price of physical gold.

1ach unit of the 1T" is equivalent to one gram of gold and it gives an opportunity to investors to

accumulate gold over a period of time.

'n a circular, Sebi said cumulative investment by Gold 1T" in Gold onetisation Scheme will

not e#ceed + per cent of total )- of such scheme.

4esides, Sebi said that all other conditions applicable to investments in G*S of banks will also

be applicable to investments by Gold 1T"s in G S.

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5. Gold onetisation Scheme 2G S3 allows jewelers and investors to deposit physical gold in

banks. This scheme allows


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Gold Deposi s&

'n this G S customer can bring the gold in any form either ornaments, rings, bullions, gold bars

etc. The gold deposit account will be opened by banks. The collection center will verify purity

and assess the value of gold. This center will inform bank about value to be credited in the

customer account. Then bank will melt the gold and will convert it in to bars. The customer will

be pad interest amount %< gold as per the scheme on maturity.

Gold Savi#$s A!!o%# &

When the customer produces the certificate of gold deposited at the /urity Testing entre, the

bank will in turn open

a QGold Savings )ccount! for the customer and credit the Qquantity! of gold into the customer!s

account. Simultaneously, the /urity >erification entre will also inform the bank about the

deposit made.

I# e(es ,a+me# ?+ Ba#3s&

The bank will commit to paying an interest to the customer which will be payable after ; (8

days of opening of the Gold Savings )ccount. The amount of interest rate to be given is

proposed to be left to the banks to decide. 4oth principal and interest to be paid to the depositors

of gold, will be Qvalued! in gold. "or e#ample if a customer deposits 5 gms of gold and gets 5

per cent interest, then, on maturity he has a credit of 5 5 gms.

Redemp io#&

The customer will have the option of redemption either in cash or in gold, which will have to be

e#ercised in the beginning itself 2that is, at the time of making the deposit3.

Te#%(e&

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The tenure of the deposit will be minimum 5 year and with a roll out in multiples of one year.

=ike a fi#ed deposit, breaking of lockin period will be allowed.

Ta7 E7emp io#&

'n the Gold *eposit Scheme 25FFF3, the customers received e#emption from apital Gains Ta#,

Wealth ta# and 'ncome Ta#. Similar ta# e#emptions are likely to be made available to the

customers in the G S after due e#amination.

:e#di#$ "e Gold o "e @e/ele(s&

Gold :oa# A!!o%# &

The jewellers, on the basis of the terms and conditions of the banks, will get a Gold =oan

)ccount opened at the

bank.

Delive(+ o) $old o =e/elle(s&

When a gold loan is sanctioned, the jewellers will receive physical delivery of gold from the

refiners. The banks will in turn make the requisite entry in the jewellers! Gold =oan )ccount.

The banks can directly get gold from the international market on a consignment basis and lend it

to the jewellers. 'f this route is more lucrative, then the entire purpose will get defeated. Thus,

this aspect will also have to be kept in mind, while deciding the interest rate.

Gold oneti$ation Scheme J Will it impact the imports of gold

*uring the announcement of the 4udget of + 56758, "inance inister )run Iaitley announced a

new scheme, the Gold oneti$ation Scheme, to replace the Gold *eposit and Gold etal =oan

scheme. This new scheme allows the depositors of gold to earn interest on their Qmetal accounts!

and jewellers to get loans on these accounts.

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)long with this, a new financial asset, called as Sovereign Gold 4onds were announced as an

alternative to purchasing metal gold. These bonds carry a fi#ed interest rate 2+.D6 3, and are

redeemable at the face value of the gold 2at the time of redemption3.

The objectives of this scheme are to mobili$e the gold stored in households and institutionsacross the country, allow jewellers to borrow gold as raw material easily, and allow for less

import requirements of gold.

Ho/ i /o(3s.

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'n the first step, the customer approaches a /urity Testing entre, a 4'S 24ureau of 'ndian

Standards3 certified centre located in most states across the country and submits the gold in form

of bullion or jewellery 2 inimum J ; gms of gold required3. ) preliminary E


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The banks may be allowed to use the mobili$ed gold for


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5. -seful 'nvestment insights are not easily available.

+. *ue to time constraint sufficient research on all the investment tools is difficult.

;. The survey sample is not very large for analysis

.

9. /roperly convincing people to invest in Gold Schemes is challenging.

6. *ue to recession there is liquidity crunch in the market.

8. There might have been tendencies among the respondents to amplify or filter their

responses under the testing conditions

.

FINDINGS

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The findings that can be drawn from the survey conducted by us can be summari$ed in the

following way?

• The # $orit% o& respon'ents (e!on) to the )e )roup o& 19 to 28 %e rswith 56* &o!!owe' (% )e )roup o& 29 to 38 %e rs with 18*.

• The # !e +onsu#ers + pture the , r-et sh re with 74* &o!!owe' (%the &e# !e +onsu#ers with 26*.

• The # $orit% o& the +onsu#ers o& re pri/ te e#p!o%ees with48* n'Go/ern#ent e#p!o%ees with 40*

• The & +tors whi+h in uen+e' to (u% Go/ern#ent Go!' +he#e is theperson ! & +tor &o!!owe' (% & #i!% &rien's )ents n'

'/ertise#ents.

• , $orit% o& the peop!e 52* pre&er to in/est in ( n- others 48*pre&er to in/est in insur n+e +o#p n%.

• , $orit% o& +onsu#ers re s tis e' with the ser/i+e n' u !it% o&pro'u+ts o& their !i&e insur n+e +o#p nies.

• , $orit% o& +onsu#ers 78* wou!' !i-e to +o##uni+ te the ser/i+eo ere' (% Go/ern#ent.

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CONC:USION

't will be interesting to note how the govt will handle the black money converted to gold.

Whether Gold %01T'S)T'%0 Scheme will be sort of amnesty scheme for general public to

declare unaccounted gold lying in the lockers. Secondly, Gold is a Women!s best friend and is

mostly in the form of jewellery. )t the time of purchase, jewelers cheat and the final cost is

almost + 7+6 higher compared to the actual cost due to making charges, wastage etc. '

highlighted in my post, @ow Iewellers heat ustomers . Therefore, it will be a double penalty if

the ornaments and jewellery will be deposited under Gold Savings )ccount as the investor will

receive only Gold >alue.The banks are likely to pay about + interest on the gold they take as

deposit from its depositors. This creates a huge 0et 'nterest argin for banks as the average

lending rate for the banks is about 5+75; . This comes as a cost for risking their position for theincrease in the value of the gold over the lock7in period.

"or e#ample, if banks take deposits of


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period of 5 year at + interest rate, banks will have to return 5 ,+ units of gold to its

depositors.

0ow suppose the price of gold is


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0ow instead of keeping gold in physical form, jewellers would prefer to keep their gold in bank

2if it is not going to be used in the short term3. onsidering the same + situations above,

'f the price is


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5. Gold onetisation Scheme 2G S3 allows jewelers and investors to deposit physical gold in

banks. This scheme allows


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account. Simultaneously, the /urity >erification entre will also inform the bank about the

deposit made.

I# e(es ,a+me# ?+ Ba#3s&The bank will commit to paying an interest to the customer which will be payable after ; (8

days of opening of the Gold Savings )ccount. The amount of interest rate to be given is

proposed to be left to the banks to decide. 4oth principal and interest to be paid to the depositors

of gold, will be Qvalued! in gold. "or e#ample if a customer deposits 5 gms of gold and gets 5

per cent interest, then, on maturity he has a credit of 5 5 gms.

Redemp io#&

The customer will have the option of redemption either in cash or in gold, which will have to be

e#ercised in the beginning itself 2that is, at the time of making the deposit3.

Te#%(e&The tenure of the deposit will be minimum 5 year and with a roll out in multiples of one year.

=ike a fi#ed deposit, breaking of lockin period will be allowed.

Ta# 1#emption?

'n the Gold *eposit Scheme 25FFF3, the customers received e#emption from apital Gains Ta#,

Wealth ta# and 'ncome Ta#. Similar ta# e#emptions are likely to be made available to the74


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customers in the G S after due e#amination.

=ending the Gold to the Iewelers?Gold =oan )ccount?

The jewellers, on the basis of the terms and conditions of the banks, will get a Gold =oan

)ccount opened at the bank.

Delive(+ o) $old o =e/elle(s& When a gold loan is sanctioned, the jewellers will receive physical delivery of gold from the

refiners. The banks will in turn make the requisite entry in the jewellers! Gold =oan )ccount.

The banks can directly get gold from the international market on a consignment basis and lend it

to the jewellers. 'f this route is more lucrative, then the entire purpose will get defeated. Thus,

this aspect will also have to be kept in mind, while deciding the interest rate.

SOVEREING GO:D BONDS

5. The sovereign gold bond will enable investors to buy gold certificates from the government,which can later be encashed for money or physical gold.

+. Gold bonds will be issued with a rate of interest to be decided by the government. 'nterest will

be calculated on the value of gold deposited at the time of investment.

;. Gold bonds will be issued in denominations of 6, 5 , 6 , 5 grams of gold. The cap per

person per year has been set at 6 grams, the government said.75


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9. *uration of such gold bonds will be for minimum of 6 to D years to protect investors from

medium term volatility in gold prices, the government said.

6. Gold bonds are e#pected to reduce the demand for physical gold bars and coins by shifting a

part of estimated ; tons per annum for investment into gold bonds.

8. The risk of change in a price of gold will be borne by the government.

D. %ne can use this bond for applying for loan as a security.

K. 4anks(04" s(/ost %ffices( 0ational Saving ertificate 20S 3 agents and others, as specified,

may collect money ( redeem bonds on behalf of the government 2for a fee, the amount would be

as decided3.

F. 4onds to be easily sold and traded on e#changes to allow early e#its for investors who may so

desire.

5 . -pside gains and downside risks will be with the investor and the investors will need to beaware of the volatility in gold prices.

This scheme will surely help many 'ndians and 'ndian economy. The government have very high

hopes from this scheme. 'f all temples from 'ndia started depositing the their gold reserved with

banks then it will be huge success.

RECOMMENDATION

With regard to Gold Schemes, consumers respond at different rates, depending on the consumers

characteristics. @ence Government should try to bring their new product to the attention of

potential early adopters.

• /eople are not aware of the Gold Schemes. ost of them know only .So awareness campaign

should be run so that people are aware of different Gold Schemes in 'ndia.

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• /eople should be educated about the different types of products. ost of them don!t know

much of the different types of plan or products.

• 0ow at the time of global turmoil Gold Schemes had to hold on to the policyholders trust

which might lead the company to the path of success.

• Government should try to adopt different strategies to market their products or plan.

ompanies should not primarily focus on the agents for their business.

• Aeeping the cost, quality and return on investment in tact is necessary in order to tackle the

competition.•


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%es io##ai(e

5. )re you aware about the gold scheme launched by our /

• Bes

• 0o

+. 'f yes, do you accept his view

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• 0one

8. This scheme can be replaced with

• 4onds

• 1quity

• Savings

• Silver

• etal

• )ll of the above

• 0one

D. Tick the


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Introduction of Gold Monetization Schemes

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