What is the Gold Monetisation Scheme – Key Insights for Investors?

In India, gold is more than a precious metal—it represents emotion, tradition, and long‑term security. Yet, while its value rises, it generates no regular income and may even add costs through locker fees and insurance. To make idle gold productive, the Government of India introduced the Gold Monetisation Scheme (GMS), allowing investors to deposit their gold with authorised banks and earn interest.

Below are the key aspects every investor should know before participating.

Understanding the Core Concept and Tenure

At its heart, the gold monetisation scheme is a gold savings account. You deposit physical gold (jewelry, coins, or bars) and the bank credits your account with the equivalent weight in gold. Over the tenure, you earn interest on this weight.

It is vital to note that the Reserve Bank of India has discontinued the Medium-Term (5-7 years) and Long-Term (12-15 years) Government Deposits for new investors, as of early 2026. Currently, the primary active component is the Short-Term Bank Deposit (STBD).

• Tenure: The STBD allows for a tenure ranging from 1 to 3 years.

• Control: Since these are bank-specific deposits, the interest rates and redemption terms are largely determined by the individual banks.

Eligibility and Minimum Deposit Requirements

One of the most attractive features of this scheme is its accessibility. It is not reserved for high-net-worth individuals or large institutions alone. The scheme is open to:

• Resident Individuals

• Hindu Undivided Families (HUFs)

• Proprietorship and Partnership Firms

• Trusts and Companies

The minimum deposit requirement is set at a manageable 10 grams of raw gold (bars, coins, jewelry excluding stones). There is no maximum limit on the quantity you can deposit, making it scalable for large investors or temple trusts holding significant reserves.

The Interest Rate Structure

Unlike a standard savings account where interest is uniform, the earnings from the gold monetisation scheme can vary. For STBD, banks can set their own interest rates.

• Current Rates: Typically, interest rates for short-term deposits hover between 0.50% and 0.60% per annum.

• Calculation: The interest is calculated on the value of the gold in rupees at the time of deposit.

• Payout: Investors can often choose to receive this interest annually or cumulatively at maturity.

While these rates may seem modest, remember that you are also benefiting from the potential appreciation in the price of gold itself.

The Process: Purity Testing and Melting

Under GMS, your jewelry is not stored in its original form. When you approach a Collection and Purity Testing Centre (CPTC), your gold undergoes a rigorous process:

1. Preliminary Test: The gold is tested for approximate purity (XRF test).

2. Melting: If you agree to proceed, the jewelry is cleaned of studs/stones and melted to determine the exact weight and purity of the gold content.

3. Certification: You receive a certificate for the pure gold weight (995 fineness), which is then used to open your deposit account at the bank.

Key Tip: It can be advisable to avoid depositing antique jewelry or family heirlooms with sentimental value, as they will be melted down. This scheme can be better suited for broken jewelry, coins, or bars where design value is irrelevant.

Tax Efficiency for Investors

A compelling financial argument for this scheme is its tax status. The government has incentivised this program heavily to encourage participation.

• Interest Income: The interest you earn on your deposit is fully exempt from income tax.

• Capital Gains: If the price of gold rises significantly during your tenure, the appreciation value you receive at maturity is exempt from any capital gains tax.

This dual tax benefit makes the effective return on investment significantly higher than:

• Holding physical gold (which attracts capital gains tax upon sale), or

• Investing in gold ETFs (which are taxed as per your income slab).

Redemption Options: Gold vs. Cash

Flexibility at maturity is a key concern for investors. Under the Short-Term Bank Deposit, you generally have two options for redemption, which must be specified at the time of deposit:

• Gold Redemption: You receive physical gold (coins or bars) equivalent to the weight deposited, plus interest.

• Cash Redemption: You receive the equivalent rupee value of the gold at the prevailing market price on the maturity date.

This differs significantly from a gold loan. In a gold loan, you pledge your ornaments to borrow money and pay interest to get the same ornaments back. In the monetisation scheme, you deposit gold to earn interest, but you will not get the same jewelry back—you get generic gold or cash.

Conclusion

The Gold Monetisation Scheme lets investors convert idle gold into tax‑free, interest‑earning assets by accepting the shift from jewellery to bullion. It’s best suited for gold held purely as investment, not sentimental pieces. With proper evaluation and selection, the scheme can turn dormant holdings into a safe, productive part of your financial portfolio.

Hello, I am Richa Jain, a seasoned financial expert passionate about empowering individuals with sound financial advice and strategies.