What It Means When You Withdraw Prematurely From Gold Monetisation Scheme

Investors in the gold monetisation scheme will experience a few changes while getting their money back on maturity of deposits or on a premature withdrawal.

The change is with respect to the manner in which the amount will be returned. The changes impact the medium- and long-term gold deposits made under the scheme.

The medium-term government deposit is for a period of five to seven years, while the long-term government deposit is for 12 to 15 years. Investors have to choose a time period for which they want to make a deposit at the time of entering the scheme.

Time Of Return Matters

An investor who is getting the amount at maturity of the deposit has the choice of receiving the amount of principal either in Indian rupees or in the form of gold. This choice makes it convenient for the investor to get their amount back in the manner that they want.

This detail or the choice will be collected by the bank where the gold deposit is made. At the same time the details of the nominee will also be collected by the bank. For those investors who might have already made the investment but not indicated the choice, the banks will collect the details from them and update their records in the next six months.

In case the investor is trying to withdraw the amount on the deposit prematurely, then the amount would be paid out only in the form of Indian rupees. This is crucial because any premature withdrawal will not give the option of getting the money in gold. Also, premature withdrawal is possible both in medium- and long-term deposit as the lock-in for the medium-term deposit is three years and the long-term deposit is five years.

Interest And Principal

The choice of getting the maturity amount in gold or rupees is present only for the capital invested in the deposit. This distinction is significant because there is also interest earned on the deposit so that has to be considered separately.

The interest on the deposits is always paid in rupees so there is no choice for this aspect. When it comes to the principal, the amount is equal to the value of the deposited gold at the time of redemption. This mode of calculation is important because it means that the investor will get the benefit of the rise in the value of gold till the time of maturity.

Gold Costs

If the choice at maturity is to go in for the redemption in gold then there is one more thing that the investor has to know. The gold redemption will be in multiples of 10 grams and any amount in excess would be paid in rupees. For example, if the weight of the gold being redeemed is say 52 gm, then 50 gm will be paid out in gold if this option is chosen and the remaining 2 gm will be paid in rupees.

In addition for the gold redemption, an amount equivalent to 0.5% of the notional redemption amount on the maturity date will be collected from the investor and paid to the bank to cover logistical and operational costs involved in the transaction. This will be an additional expense for the investor.

Overall Choice

When it comes to the overall choice for the investor, they should go for the gold option only when they need gold for consumption purpose but this will come with an additional cost and even here a small fractional part could still be received in rupees.

(Arnav Pandya is the founder, Moneyeduschool.)