Reason behind the Gold Deposit Scheme
Gold is considered to be the safest investment option and we Indians have a habit of keeping a considerable amount of Gold at our homes or bank locker. We keep it either as a part of our wealth or for the future use in the event of the marriage of our children.
Inherently, Gold is an unproductive asset and it does not give returns as such. The Government of India has tapped this opportunity and had launched the Sovereign Gold Bond Scheme in the past. Being the biggest bank of India SBI had also come up with the Gold Deposit scheme earlier and now the same scheme has been renewed and a new Revamped Gold Deposit Scheme 2019 has started accepting deposits.
Basically, the main aim behind the launch of the Gold Deposit Scheme is to unleash the hidden or unproductive wealth lying idle in the form of yellow metal with the Indians. The government wants to mobilize this idle asset and channelize it back in the Indian Economy through the banking system.
The SBI Gold Deposit Scheme allows you to deposit your gold in the form of jewellery, coins or bullions, etc. and in return, you will get interested at a prescribed rate. The returns are assured just like Fixed Deposits.
How does the Scheme Works?
You have to simply visit any of the authorized SBI bank branch (shown below) and deposit the gold in the forms of coins, jewellery, bullions, etc. excluding stones and other metals. The deposited gold will be melted & refined and valuation will be done at the prevailing market price by hallmarking centres (at present there are 331 hallmarking centres across India and most big cities have one).
SBI Authorized Branches for Gold Deposit Scheme
Once the valuation is done a Gold Deposit Certificate will be issued by SBI’s nodal branch i.e. bullion branch, Mumbai and will be sent to the depositor directly. The valuation shows the current market value of pure metal post-refinement.
Features of the Gold Deposit Scheme
Every Indian Resident, singly or jointly, Proprietorship & Partnership firms, Hindu Undivided Family (HUFs), Trusts including Mutual Funds/Exchange Traded Funds registered under SEBI (Mutual Fund) Regulations, Private and Public Limited Companies, charitable institutes, even central as well as state government or entity owned by state or central government can open account and deposit gold under this scheme.
The minimum deposit under Gold Deposit scheme is 30 gms (gross) per person with no maximum limit. That is a person can deposit as much as he wants to deposit. Nomination facility is available for deposits in single names in an individual capacity only.
Terms of Deposits
SBI offers three types of deposits:
- Short Term Bank Deposit (STBD)
- Medium Term Government Deposit (MTGD)
- Long Term Government Deposit (LTGD)
The tenure under STDB is 1 year to 3 years while MTGD covers the tenure of 5 years to 7 years. The long term Government deposit accepts deposits for 12 years to 15 years.
The deposits can be extended multiple times in a block of one year under Short Term Bank Deposits.
The current rates of interest under different tenures of deposits are as follows:
- Short Term Bank Deposits: The interest rates vary as per time horizon i.e. 0.50% p.a. for 1 year, 0.55% p.a. for 1 to 2 years and 0.60% p.a. for 2 to 3 years. The interest rates are cumulative i.e. interest together with the principal will be paid on maturity, and non-cumulative i.e. interest is paid on 31st March every year till maturity. Both principal and interest under STBD are Gold denominated and broken period interest is paid out at the time of maturity. An investor needs to choose the option of cumulative or non-cumulative interest at the time of deposit.
- Medium Term Government Deposit and Long Term Government Deposit: The interest rate under MTGD and LTDG is same as 2.25% p.a. Under MTGD and LTGD scheme, the principal is denominated in Gold while interest is calculated on the gold value in rupees and paid out on 31st March under non-cumulative option or at the time of maturity under cumulative option. Similar to the STDB scheme the option of cumulative or non-cumulative interest has to be exercised at the time of deposit and broken period interest will be paid out at the time of maturity.
The interest will start accruing from 30 days after the receipt of gold or from the date of refinement and conversion of the gold into the tradable gold bars, whichever is earlier.
Investors are given an option to take the redemption of deposits either in the form of gold or equivalent rupees as on the date of maturity with no additional charges. However, under the MTGD and LTGD, investors are charged administration fees of 0.20% if the redemption of the deposits is done in Gold. No charges are levied if the redemption is done in the INR equivalent to the prevailing market price of gold as on the date of maturity.
If redemption is done in gold, the mode of payment will be coins of 10 gms, 5 gms, 2 gms, 1 gms. Any fractional parts (i.e. less than 1 gm) will be converted to cash as per prevailing rates of gold at the time of redemption.
Gold returned will 0.995 finesse pure, certified by RBI Mint. It is the purest form of the gold.
In the case of emergencies, premature withdrawals are allowed after the lock-in period of one year in STBD, 3 years in MTGD and 5 years in LTGD with an interest penalty. Under STBD interest penalty is to be notified by the bank and under MTGD & LTGD interest penalty will be levied as notified under RBI Notification dated 21.01.2016.
The Gold Deposit Scheme is totally tax-free that is:
- No income tax on the interest earned under cumulative as well as non-cumulative option.
- No tax on capital appreciation over time. Similarly, no set-off for the erosion of the capital over time in case of reduction in Gold prices at the time of maturity.
Purity Verification and Account Opening
The purity of the Gold can be ascertained by visiting Hallmark Centres. First of all the XRF test is done through the machine which gives approximate purity. No tampering with the jewellery is done and you may choose to take back the jewellery at this stage without paying any fees
In case you wish to proceed with the deposit, the second step of removing all the stones and studs starts and the net weight of remaining metals will be measured in front of the investor. After this, to test the exact purity fire assay test is done where the gold jewellery will be converted into raw form i.e. into the gold bar.
All these processes take not more than 3-4 hours and are done in the presence of the investor. If you disagree with the purity value after the fire assay test, you can take the gold back in raw form after paying a nominal fee towards fire assay test.
In case you decided to go ahead with deposit, the fire assay test will be borne by the bank and you will get the certificate of the weigh and the purity of the yellow metal from the testing centre.
Carry the weight and purity certificate along with the KYC documents to the authorized SBI bank branch and open a “gold savings account” under the Gold Deposit Scheme. The bank will credit the gold on the basis of the certificate provided by the hallmark testing centre.
Pros of Gold Deposit Scheme
- Your dead investment will start fetching you some returns.
- No thread of your gold getting stolen.
- You will save the bank locker charges.
- You will get to know the exact purity and fair value of your holding that too free of cost.
- Helping the nation in reducing the gold import bills as the melted gold gets channelized into the Indian economy.
- Loan up to 75% of the Gold deposit certificate can be taken in case of emergencies.
- Tax-Free returns with no capping.
Cons of Gold Deposit Scheme
- You will not get the gold in the same form you deposited i.e. you will get the raw gold at the maturity.
- The choice of Gold or Cash at the maturity is to be taken at the time of deposit.
- Low-Interest Rates but sitting idle in the bank locker or at home does not fetch you any returns.