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To most Indians, gold paperization scheme has little appeal

Section: Daily Dispatches

Gold Monetisation Scheme May Not Attract Major Segment of Gold Owners

By Chandralekha Mukerji
The Times of India, Mumbai
Monday, June 1, 2015

The gold monetisation scheme aims to unlock the value of the common man's gold jewellery lying idle in a locker. This is why the minimum deposit has been kept as low as 30 grams and returns have been made tax-free to sweeten the deal.

However, these may not be enough to lure people to park their gold in a scheme that offers 1 gram for every 100 in a year. The Times reached out to a cross-section of consumers and found they were not very enthused by the scheme.

Experts say the scheme will not appeal to major segments that invest in gold. Buyers of gold jewellery, for instance, won't like to part with their ornaments.

All the gold that Jammu-based Jitendra has is in the form of jewellery for his wife Neha. "She uses that jewellery, so the 1-2% return offered by the scheme is irrelevant for a small investor like me," he says.

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Also, gold jewellery, especially inherited, has sentimental value and many won't like to see it melted down.

"People may still deposit the coins and bullion. However, convincing Indians, who think 10 times before even using their jewellery as collateral, to actually melt them for a minuscule return of 1-2% will be very difficult," says Mimi Partha Sarathy, managing director of Sinhasi Consultants, a Bengaluru-based wealth management firm.

The melting part is a big put-off. Pune-based engineer Lahariya, 29, has 20% of his investment portfolio in gold, mostly jewellery. "Even though my wife uses it occasionally, I cannot put it in a scheme that requires me to melt it. It's better lying idle in a locker," says Lahariya.

But emotional attachment is only one factor.

The average gold investor is a conservative person who doesn't like to part with his gold for a certificate from the bank. Bengaluru-based Lalitha Iyer, 56, who recently retired from Wipro, is a keen investor in real estate and gold.

"On the face of it, it looks like a good scheme. However, I'm concerned about the security and genuineness in case I want to redeem in it gold form at the end of the tenure," says Iyer.

A bigger problem is that submitting your gold could open a can of tax worms. True, the bank will not ask any questions when you submit the gold. But this is not an amnesty scheme and the tax department might want to know if you have paid wealth tax on the gold in previous years.

Though wealth tax has been abolished, even inherited jewellery was liable to wealth tax until the previous financial year.

"People with significant gold holdings will be wary. After all, you are asking them to declare their assets at a bank which can be easily backtracked," says Sumeet Vaid, founder & CEO at Freedom Financial Planners. "Most of the holdings are unaccounted with no purchase receipts, especially inherited items.

Even if the purchase is from accounted sources, investors do not usually keep receipts of purchase," says Anil Rego, CEO and Founder, Right Horizons Wealth Planners.

Even so, this is a great opportunity for those who buy gold bullion as an investment. If you are the kind of person who buys gold coins and bars on a regular basis, you can use this scheme to enhance your returns. Just buy the gold and submit it to the bank.

This is precisely what Nashik-based Sandeep Kulkarni intends to do when buying gold for his baby daughter Adnika.

"Instead of buying jewellery for her, I will buy 24-carat gold bars and get 1-2% additional return on the investment," he says.

As an investment, right now, it looks as if investment in the scheme will surely fetch a 1% higher price for every year that you keep the gold in the scheme. However, keep in mind that you will be getting the interest in the form of gold.

If the price of gold goes up, it's very good for you because even the interest will go up (though marginally).

If the price is Rs 27,000 for 10 grams today and rises to Rs 30,000 by next year, the investor gets gold worth Rs 30,300.

If the value of gold falls, you lose in the same proportion.

If the price falls to Rs 25,000, you will get gold worth Rs 25,250.

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