Government gold saving scheme in India 2020
Indians love gold and have been in the habit of saving in gold whenever they have spare cash. But this traditional way of savings by collecting gold in the form of jewellery or gold coins is changing. To encourage this trend, Indian Government launched three new Gold schemes in November 2015. A Gold Coin bearing Ashok Chakra, a Gold Monetisation Scheme and the Sovereign Gold Bond Scheme. Besides these new Gold schemes in India, there is the old trusted Gold ETFs or Gold Exchange Traded Funds. Many now consider these new gold investment plans in India to be the safest and best way to invest in gold in India. So we will explain the details of all these gold saving schemes in India.
Government of India Gold Monetisation Scheme
Under India Gold Monetisation Scheme, any resident Indian can surrender Gold, in any form, to any of the special Gold Collection and Purity Testing Center in India. The purity and content of gold is checked in front of you and a certificate issued mentioning the amount of gold surrendered. This is the Indian Gold Monetisation Scheme certificate. The Certificate mentions the weight of gold surrendered and a value based on the market price of gold on the date of the certificate. On this value of gold, you will get simple interest at the rate of 2.5% per annum. These Gold certificates have fixed scheme periods, Short Term (1-3 years), Medium Term (5-7 years) or Long Term (12-15 years). At the end of the scheme period, you will get back the same weight of Gold in the certificate in the form of pure gold bars. You can also opt to get paid in cash for the value of the gold based on the actual market price on the maturity date.
The advantages of the Indian Gold Monetisation scheme
You can rest easy when all your physical gold is in the form of legal Government Gold Certificates. The advantages of the Indian Gold Monetisation scheme are as follows:
- No need to be afraid of robbers stealing the gold or be scared of income tax raids.
- Interest is paid for the value of gold at the time of conversion plus you get back the same amount of gold at the appreciated value at the date of maturity of the Gold Monetisation Certificate.
- You can surrender gold in any form or purity. Even broken or damaged jewellery is accepted by the special Gold Collection and Purity Testing Centres.
- Tax-free: Interest got from the Gold Monetisation scheme are exempt from capital gains tax, wealth tax and income tax. Also no capital gains tax on the Gold value appreciation.
- You can convert any quantity of Gold under the Government of India Gold Monetisation Scheme, there is no maximum limit on the weight of gold.
- The details of the Gold Monetisation Scheme in India are explained on the Government website about the Indian Gold Monetisation Scheme.
What is Gold Bond scheme in India
The Sovereign Gold Bond Scheme in India is a Government of India Gold savings scheme. The official name is ‘Sovereign Gold Bonds Scheme’. Each Sovereign Gold Bond is equal to 1 gram gold and you buy at the market price of gold whenever the Government issues notification of its sale. It is possible to buy sovereign gold bond online from leading bankers in India.
Investing in gold bonds in India will have the same benefits as if you are holding physical gold. Gold bonds investment in India can be used as security for obtaining gold loans from Banks. How to invest in gold bonds India is simple and can be got from any of the leading Banks in India. Selling Indian Gold Bonds is easy. It can be done through the stock exchanges in India and you can usually get the money in your bank in 24 hours.
Advantages of Sovereign Gold Bond investment in India
Robbers will not try to steal Gold Bonds. The benefits of buying Sovereign Gold Bonds in India are:
- The price of Sovereign Gold Bond is the same as the price of gold daily. You can buy sovereign gold bond online from leading banks in India.
- The Sovereign Gold Bond value increases same as the value of gold.
- You get 2.5% interest on the value of your initial investment in the gold Bond.
- Even though Sovereign Gold Bonds in India has a lock-in period of 8 years, with options to exit in the 5th, 6th and 7th years, it can still be sold in the Stock Exchanges in India, anytime and at the price of gold on the day you are selling.
- The Government of India issues a sovereign guarantee for payment of the Gold Bonds in India.
- The Gold Bonds in India are tax-free: No capital gains tax will be levied on gains from sovereign gold bonds in India.
- Whenever you want a gold loan, it will be a quick process, because the Banks giving the gold loan does not have to check whether the gold is real or fake
- Anytime you want to sell the gold bonds it can be sold in the share market and money in your bank account, usually within 24 hours
What is Gold ETF and how does it work in India
ETF is an abbreviation and means “Gold Exchange Traded Fund”. This is how the NSE (National Stock Exchange of India) explains what ETFs are:
“Gold Exchange Traded Funds (ETFs) are simple investment products that combine the flexibility of stock investment and the simplicity of gold investments. ETFs trade on the cash market of the National Stock Exchange, like any other company stock, and can be bought and sold continuously at market prices.
Gold ETFs are passive investment instruments that are based on gold prices and invest in gold bullion. Because of its direct gold pricing, there is a complete transparency on the holdings of an ETF. Further due to its unique structure and creation mechanism, the ETFs have much lower expenses as compared to physical gold investments.”
So when you invest in a gold ETF for every gram of gold you invest you get a unit in ETF. The value of the ETF unit is the open market price for a gram of gold which is published in all newspapers daily. Anytime you want you can sell the ETF units, it can be sold online at market price, and the money will come into your bank within 24 hours in most cases. So Gold ETFs are a very safe investment and a very liquid asset because you can sell it whenever you want and get money quickly.
Gold ETF Vs Gold Bonds
We list below the difference between Indian Sovereign Gold Bonds and Gold ETFs and also the advantages and disadvantages of Indian Gold Bonds and Gold ETFs:
- Indian Gold Bonds are guaranteed by the Government of India whereas the Gold ETFs have the backing of physical Gold.
- Gold ETFs are open-ended mutual funds traded on a stock exchange just like a share or stock of a Company. Whereas Indian Sovereign Gold Bonds are closed-end funds with fixed maturity periods. Even though a closed-end fund, they can still be traded on the stock exchange like a commodity.
- Each unit of both Gold Bond and Gold ETF are based on one gram gold, and the daily value is determined by the daily market price of gold.
- There are small charges associated with Gold ETFs like expense for managing the fund and brokerage costs which total about 1% and is lower than costs for regular stock-based mutual funds.
- The big advantage of Indian Gold Bonds over the Gold ETF is that the Government pays an interest rate of 2.75% annual simple interest paid every 6 months.
- There is a cap of 500 grams investment in Indian Gold Bonds per financial year. Gold ETFs, on the other hand, have no limits on purchase.
- The advantage of both Gold Bonds and Gold ETFs are that they are paper gold and risk-free to hold, unlike physical gold where you are always at risk of being robbed and target of thieves.
- Tax advantages are better on Gold Bonds than Gold ETFs. The latest Indian budget has exempted redemption of Gold Bonds on maturity from capital gains tax and income tax on the interest earned from Sovereign Indian Gold Bonds. But Gold ETFs are considered as non-equity investments and subject to short-term capital gains on units held for less than 36 months.