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Jaitley Announces New Gold Schemes: What to Know

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Jaitley Announces New Gold Schemes: What to Know

Investors who want to buy gold will soon have a new option. This was among a number of proposals announced by Finance Minister Arun Jaitley in the Budget to reduce India's import of gold as well as put to work the vast amount of gold deposits held in the country.

The Finance Minister said a Sovereign Gold Bond would be introduced as an alternative to purchasing physical gold. The bond or financial instrument will carry a fixed rate of interest and when investors sell the bond they will get the value of the gold.

In such schemes, investors buying gold don't get the metal in physical form. Instead, they get a paper or certificate issued by the government saying they bought a certain amount of gold.

The details of the Sovereign Gold Bond scheme have not been announced yet. But experts have hailed the move of the government to introduce such a scheme. Nimesh Shah, MD and CEO of ICICI Prudential Asset Management, said these bonds exist in some other countries and offer a good alternative for investors who don't want to buy physical gold. "If you have the belief that gold prices will go up, just put the money in gold bonds. The beauty of this instrument is that when the price of gold goes up the value of the bond price also goes up by the same amount," he said.

These gold bonds will also offer a fixed rate of interest, Mr Jaitley said. These gold bonds are designed to appeal to people buying gold for purely investment purposes, who may or may not want gold jewellery or who want gold at a future date.

If the scheme becomes successful, it could help reduce the import of gold into the country. India imports as much as 800-1000 tonnes of gold each year, draining away precious foreign exchanges of the country. Ajit Ranade, chief economist of Aditya Birla Group, had earlier said that such gold bond scheme could help reduce India's gold imports by as much as $10 billion (Rs. 60,000 crore at 60 rupee per US dollar).

In another significant announcement, Mr Jaitley also announced a gold monetisation scheme that will help investors earn interest on the gold they own. The new scheme will allow the depositors of gold to earn interest in their metal accounts, Mr Jaitley said, adding that it will also help mobilize the idle gold in the country and put it into productive use. An estimated 20,000 tonnes of gold, worth over Rs 60 lakh crore, is held in the country. Banks and other agencies would also be able to monetise the gold deposited, Mr Jaitley said. The details of the scheme have not yet been announced.

The new monetisation scheme will replace the gold deposit schemes that are currently offered by some banks, the Finance Minister said. The current gold deposit schemes have not proved popular as they have a high minimum requirement. For example, the gold deposit scheme from State Bank of India (SBI) has a minimum requirement of 500 gm and offers interest rate of nearly 1 per cent. Experts have said that gold monetisation scheme should have a much lower minimum requirement and also offer a higher interest that those offered by the current schemes.

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