Kochi: There has been only a lukewarm response to gold schemes, launched by Union Government to reduce export of gold and to bring into circulation the 20,000 tonnes of gold lying idle in bank lockers and in households, by investors.
The scheme has lost its sheen and glitter with the first scheme launched in 1999 collecting just 16 tonnes of gold after coming into force 16 years ago. The new scheme is generally perceived to be more attractive to investors.
Gold Monetisation Scheme (GMS) gives option for individuals and religious institutions to monetize their gold lying idle by investing in banks for short term and long term plans. It enables them to earn an interest and get capital gains at the end of investment period. The GMS scheme came into existence in 2015 following which the old gold scheme, which was in force since 1999, became defunct. However, RBI has made it clear that investments under the old gold scheme will be in force till it attains maturity. The minimum investment under GMS 2015 scheme should be 30 gm. However, RBI is yet to decide on interest rate for short term investment ranging from one to three years. Each bank can individually decide on the interest rates. Midterm deposit ranging from five to seven years attract an interest rate of 2.25 per cent while long term investments ranging from 12 to 15 years yield an interest rate of 2.5 per cent per annum.
An investor depositing gold in short term investment plan at the end of maturity period can take back interest as gold or its price depending on the day’s market value. The investments in other schemes on maturity will offer interest depending on the prevailing market value of gold. If investment is withdrawn before the maturity period, the investor will have to pay a penalty laid down by the bank. All investments under this scheme come under the condition of Know Your Customer (KYC).
There is a general perception that gold deposited under this scheme will be limited and gold procured may not cross 100 tonnes. Critics of this scheme point at the unattractive interest rate as the main reason which prevents an investor from investing in this gold scheme. The better returns on long term deposits from bank to investor who are ready to convert gold into cash by selling it, also strengthens the voice of critics.
The banks have been given the authority to decide interest rates on short term investment plans. The interest rate for short term plans may be restricted to just one per cent. It remains to be seen how many investors will come forward to deposit gold at this unattractive interest rate. Another drawback of this scheme is the penalty imposed by banks for withdrawing gold from the investment scheme before the maturity period.
Investors wary of risk
The investors are also wary of the queries that may come from the income tax department regarding the source of gold invested in the scheme. PAN card has been made compulsory for investments where the value of gold is over Rs 50,000 and it is main reason for the fear. The scheme doesn’t offer any guarantee to prevent erosion of capital gain for the investor who often doesn’t see the risk when he invests in gold scheme which offers the market value of gold at end of the maturity period.
The banks in all probability will not show interest for short term investment plans and it is one of the drawbacks of this scheme. The working expenditure followed by hedging expenses in short term plans often discourages banks to run this scheme. The banks also cannot ignore the expenses arising out of gift schemes doled out to customers to attract investments.