Gold is considered to be a safe investment. And since centuries, Indians have kept a significant portion of their wealth in this form.
But inherently, Gold is an unproductive asset. Even if it's bought as an investment, it typically sits at home or in a bank locker and doesn't earn any return as such.
Now, is there a way to make it more productive? Is there a way to grow your precious yellow metal? Something similar to a fixed deposit?
The good news is that there is indeed an option. And you can grow your asset by making use of Gold Deposit Scheme by SBI.
In this post, we will look at details of this scheme...
What is SBI's Revamped Gold Deposit Scheme?
The gold monetization scheme was first launched by the Indian Government to tackle the issue of tons of yellow metal lying idle in the Indian households. Government wanted to mobilize this idle asset and put it back to productive use.
SBI's version of this this scheme is called Revamped Gold Deposit Scheme (R-GDS) and replaces earlier schemes.
This scheme allows you to deposit your Gold whether it's in the form of jewelry or bullion. It behaves like a fixed deposit as it's fully secure but you also get assured returns.
Essentially it is a win/win. The idle asset gets mobilized and gets put into productive use while the customers earn some interest on what otherwise would have been a static possession.
How does this scheme work?
As part of this scheme, you have to first deposit your jewelry with an authorized SBI bank branch.
The value of your original investment will change as the market prices for the precious metal change so it's not much different from you keeping your jewelry at home.
But where this scheme really shines is that in addition to benefitting from rise in gold prices, you will also earn an additional interest over and above that.
The deposit can be made in any form i.e. coins, bars or jewelry but do note that if you deposit your jewelry, it will be melted and refined.
This operation as well as initial physical inspection and valuation is typically done by a hallmarking center. There are about 331 hallmarking centers in India and most big cities have one.
Once everything is in place, a Gold Deposit certificate will be issued by SBI's Nodal branch i.e. bullion branch, Mumbai. This certificate is only for amount of pure metal post refinement and will be sent to the depositor directly.
Key Scheme Details
Any resident Indian, be it individuals, HUFs, Propertierships, partnerships, trusts or companies can invest in this SBI scheme and there is no restriction as such.
Additionally, deposit can be made in the form of bars, coins or jewelry but only in scrap form as all of them will be melted. The minimum acceptable quantity is 30 gms and there is no upper limit.
Tenure of Deposit
For SBI, there are two broad choices you have with respect to the tenure of your deposit
- Medium and Long Term Government Deposit (MLTGD)
- Short Term Bank Depsoit (STBD)
MLTGD has a tenure option between 5-7 years (medium term) or between 12-15 years (long term). STBD has a tenure between 1-3 years, which can be extended multiple times in blocks of one year.
MLTGDs are used to replenish RBI's reserves as well as to make coins and to lend to the jewelers. Short term deposits are used to make coins and to lend to jewelers.
STBD interest rates are decided by SBI and may change from time to time. Current Interest Rates on STBD are as follows:
Both the principal and interest on STBD are denominated in Gold. This interest can be non-cumulative i.e. it will be paid out on 31st March every year or cumulative i.e. it will be paid out on Maturity.
For MLTGDs, the interest rates are decided by the government in consultation with RBI. The current interest rates are as follows:
Just like STBD, the principal in case of MLTGD is denominated in Gold but the interest on same is calculated in Indian Rupees with reference to the prevailing value at the time of deposit.
One thing to note is that these interests will only start accruing once your jewelry is refined and converted into tradable bars. However, if it takes more than 30 days post receipt, your interest will start accuring from day 30.
For STBD, you have an option to redeem your principal either in the form of Gold or in equivalent INR as on the date of maturity.
In case of MLTGD, you can again redeem in INR equivalent or in Gold form. However, you will be subject to an administrative fee of 0.2% in case you decide to redeem in metal form.
Premature Withdrawal Options
STBDs can be withdrawn after an initial lock-in period of 1 year. There is a penalty on the applicable interest rate. Ask your SBI branch for the exact rate.
MLTGDs can be withdrawn at any time after 3 years while LTGDs can be withdrawn after 5 years. Premature penalty will be applicable and shall be calculated as a sum of two factors:
- The actual value of the Gold deposit as on day of withdrawal
- Interest payable on the value of Gold at the time of deposit
The interest payable after penalty is calculated according to the following table:
3-5 years deposits
MTGD Rate - 0.375%
5-7 years deposits
MTGD Rate - 0.25%
MTGD Rate - 0.25%
7-12 years deposits
LTGD Rate - 0.375%
12-15 years deposits
LTGD Rate - 0.25%
For more details, refer this RBI notification.
There is no taxation on this scheme. The interest as well as the maturity amount are completely tax free.
There are two steps to enroll in this deposit scheme.
- Purity Verification & Deposit
- Opening of Gold Savings Account in an authorized SBI branch
Purity Verification & Deposit
The first thing you need to do is to get the purity verified for your Gold. You can do this at any of the hallmarking centers.
Most big cities will have multiple hallmarking centers for you to choose from.
These centers will first do an XRF machine test. This test doesn't destroy or damage your jewelry and will tell you the approximate purity. You may choose to take back your gold at this stage without paying any fee.
If you decide to go ahead with the deposit, a second test will be conducted.
In this step, the stones and studs will be removed and net weight will be measured in front of the customer. Next step after this is to measure the exact purity through a fire assay test where your holding will be converted into a gold bar.
All these steps happen in front of the customer and should take no more than 3-4 hours.
If you don't agree with the purity value after fire assay test, you have an option to take your gold back (in the form of coins or bars) after paying a nominal assaying fee.
However, if you decide to go ahead with the deposit, this fee will be paid by your bank.
You will get a certificate on the weight and the purity of the gold from the testing center.
Open Gold Savings Account with SBI
As a next step, you need to go to accredited SBI branch and open a 'gold savings account'.
You will need to submit your ID proof and your address proof alongside your application form. You will also need to carry the certificate you got from the previous step to the SBI branch.
Basis this, the bank will open an account and credit the gold as per your certificate.
In parallel, the purity verification center will also verify to the bank about the deposit made to them. You will start earning interest within 30 days of opening of your account.
Key Advantages of SBI R-GDS
- Your investment doesn't stay idle and grows in addition to benefiting from rise in prices.
- The deposit is fully secure and you don't need to worry about your jewelry getting stolen anymore.
- You won't need to spend any money on a bank locker.
- You will get the exact fair value for your jewelry.
Additionally, you are doing your country a favor as the gold deposited in this scheme reduces the amount that needs to be imported. Further, these deposits boost RBI's reserves and help in reducing the borrowing cost.
A few things to note
Your jewelry won't stay intact. Instead, it will be melted and stored in the form of 99.9% pure gold bars. If you have any studs or stones embedded in your jewelry, they will be removed and handed over to you.
Further, your gold gets valued only in pure form. So any impurities if there will reduce the amount you will get.
Also, while you can choose to redeem either in Gold or Cash, this choice must be made at the beginning. SBI may consider the switch request but you will have to contact your branch for same.
If redemption is done in gold, the mode of payment will be coins (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 at time of redemption.
How secure is this scheme?
Since this scheme is backed by the Government, it's as secure as it gets. You don't have to worry about your jewelry getting stolen or lockers getting broken into.
Isn't the interest rate on SBI GMS too low?
Do note that you are getting this interest in addition to standard increase in Gold price. If you make use of this facility, your jewelry will sit idle and earn zero interest.
Is there any way to keep the jewelry intact?
No, that's the biggest disadvantage of this scheme.
The jewelry is converted to standard pure bars and there is no way to keep it intact. For this reason, you should only deposit the jewelry that's not being used for wearing purposes.
Which SBI brances are authorized for these deposits?
Not all SBI branches are authorized to accept these deposits so you may need to check with your branch manager before you go there.
As of 2017, following SBI branches are authorized:
- PB Branch, New Delhi
- SME Branch, Chandni Chowk, Delhi
- Bullion Branch, Mumbai
- Main Branch, Bangalore
- Main Branch, Hyderabad
- Thyagarayanagar Branch, Chennai
- SBI Branch, Coimbatore
And that's it.
That covers everything on this topic. Let me know if you have a question.