Gold as an Investment 05 Oct 2017
Gold prices appreciate steadily over long periods of time. 10 grams of gold purchased in 2000 for Rs. 4400 would be worth approximately Rs. 29,000 today.
However, you cannot enjoy the benefits of price appreciation until you sell your gold, which many buyers are often reluctant to do. So, how do you capitalise on the jewellery you own, without selling it?
The Gold Monetisation Scheme was introduced in 2015 to turn gold holdings into an earning asset by allowing you to deposit physical gold- bars , coins or jewellery - into a Gold Savings Account. This gold would then earn interest based on gold weight and also the appreciation of the metal value. Currently, your gold is probably lying idle in your bank locker. You may be paying annual charges to your bank for the facility. Simply put, you are spending money to own gold in a safe and secure manner, money that could have been multiplying in value.
Let’s say you own 100 grams of gold lying idle in your locker. You take it out, and set up a 12-15-year gold deposit with your bank
GMS requires a minimum deposit of 30 grams, with no maximum limit, for a tenure of 1 to 3 years, 5 to 7 years, or 12 to 15 years
Assuming the gold price at the time of deposit is Rs. 30,000 per 10 grams, or Rs. 3,000 per gram, your deposit’s value would be Rs. 3 lakhs, i.e. 100 grams x Rs. 3,000
Annual interest on your long-term deposit at a rate of 2.5% is Rs. 7500
For shorter terms, the interest rates vary between 0.50% to 2.25%
The interest income is exempt from capital gains tax, wealth tax and income tax., which means Rs.7500 x 15 years = Rs. 1,12,500 is assured tax-free income
Assuming gold prices double in the next 15 years, your 100 grams’ gold will be worth Rs. 6 lakhs, and you don’t need to pay taxes on the capital gains of Rs. 3 lakhs
At maturity, you can receive the amount in cash or in 995 fineness gold; a useful option if you prefer to retain your holdings in gold.
Let’s add up the benefit. Presuming an annual fee of Rs. 3,000, you’ll have saved Rs. 45,000 you would otherwise have spent on locker charges for 15 years + Tax free income from interest of Rs. 1.12 lakhs + Tax free capital gains, i.e. the price appreciation of Rs. 3 lakhs.
Then there are the added benefits of zero risk of loss of gold, or reduction of purity, and you can redeem your investment in gold or in cash as you wish.
So, if you’re looking for an unexplored avenue of wealth to fund an entrepreneurial venture, take a world tour, or simply live life on your own terms, gold might be a good option to get you on track.
To learn more about the Gold Monetisation Scheme, click here.