BY RACHNA MONGA KOPPIKAR

The shining yellow metal always evokes nostalgia, sentiments and a deep sense of security for us. From our Naani’s jhumkas to great grandmother’s naulakha haar, we have adorned the heirloom or traditional gold jewellery. We preserve it in our bank lockers for years with the hope that it will save us on a rainy day or our next generation will cherish our treasure box.

But let’s just think practically NOW.

How frequently do we use the locker jewellery?

Will the locker jewellery come to our rescue incase we need the money in the middle of the night? OR what if the jeweller tells us the quality of the gold isn’t that good, when we actually need it?

Does that gold sitting in the locker earn any income for you?

Whenever there has been a special occasion- milestone anniversary or a marriage, I have hardly used this jewellery and opted for more contemporary pieces. I feel there is snowball’s chance in hell that my next generation will cherish the shining pieces of metal.

After procrastinating the decision many times, I finally took a cue from the country’s top finance woman, Ms Nirmala Sitharaman, to monetise my bank locker. Ms Sitharaman had proposed an Asset Monetisation Pipeline to generate extra cash for government assets by leasing them to private companies for a certain time period.

Monetise your Bank Locker
The Monetisation is the process or means of deriving income or generating cash from an asset. A substantial part of any Woman’s asset is the gold jewellery which is kept in bank lockers and doesn’t generate any income until its sold. As and when gold prices show a consistent upward movement, you can sell some of your ethnic gold jewellery and reinvest the money in the gold in a way that’s easily accessible, easily saleable incase of emergency. This encashment could result in some loss, as the jeweller may deduct 20-25% value, depending on the quality of the gold. Another 20% may go in capital gains tax (if gold is being sold after three years of holding period).

Even after considering these deductions, I strongly feel, there are better alternatives to invest in gold and other assets, instead of keeping all the gold in just a locker for which you pay a hefty annual rent or have to keep a fixed deposit with the bank as a deposit amount.

Bond with your Gold in a New Way

Convincing yourself to let go off our gold jewellery is going to be a hard decision. Harder. If you have to convince family too. Think of it as a smart trade-off which no one can refuse. You sell your physical gold. You buy it in a paper form, which mirrors the gold prices, gives you interest income, and can be sold without incurring any loss in value. You can transfer or give them as a gift too.

1. Sovereign gold bonds (SGBs) are government backed bonds that allow you to buy the purest form of gold (999 purity). You can buy these bonds at current gold prices and redeem them after 8 years at the then prevailing gold prices. So the value of your gold bond increases or decreases inline with gold prices. Here is a quick snapshot of SGBs. You can buy these bonds by filling a physical form and electronically through a bank or a stock broker also.

Purity and Safety is Guaranteed: Unlike sale of jewellery, there is no deduction on redemption of these bonds. Also, you don’t have to worry about the purity of the gold.
Sovereign Guarantee: These bonds are issued by Reserve Bank of India as per a predecided time table. They are completely safe and bond units can be held in electronic format as well. Buy SGBs from stock broker, bank or post office. The next issue of SGBs will be launched on January 10 2022.
No physical gold exchange is involved in SGBs. You actually buy a bond denominated in terms of pure gold. So if you buy one bond, you buy one gram of gold. Minimum allowed quantity is 1gram and maximum is 4 kg per person.

You earn 2.5% interest (cash credit to your account on semi-annual basis) on the amount of gold bonds so bought. Locker jewellery doesn’t earn any income like this!

Gift an SGB or Take a Loan: If you hold SGBs in a demat form (electronic mode), you can easily transfer to another person eligible to invest in these bonds. Otherwise also, you can transfer SGBs held in physical form to other family members. A loan can be availed in a bank.

The holding period is bit like our Indian Saas-Bahu Series : SGBs can be redeemed after 8 years. An option is there to redeem after 5 years or sell these bonds on a stock exchange (if held in demat form) but an early redemption or sale before 8 years will make gains subject to tax.

Enjoy tax free redemption: What you get on SGB redemption: you pocket it. Let’s say you bought one unit of SGB at Rs 4710 per gram. When you redeem after 8 years, the price of the bond becomes Rs 5000, your gain of Rs 390 will not attract any kind of gains that is usually paid on selling a capital asset.
A Permanent Account Number (PAN) is a must to be quoted along with the application for SGB.
For more details click on this link

2. Gold-based mutual fund (or Gold exchange-traded fund)- If you don’t like the Saas-Bahu Soap type holding period of 8 years, you can buy gold based mutual funds (Gold-ETF), through a stock broker.

Commonly known as gold exchange traded funds, as you will buy units of this fund, it will purchases physical gold of highest purity at the prevailing gold price.
You can buy these units today and sell them tomorrow, its that easy. For example, since gold prices are very low today you buy units of the most actively traded Nippon India ETF Gold BeES, at Rs 41 (one unit of gold etf represents 0.01 gram of gold) . Three years on, you sell the units to buy actual gold jewellery for your son or daughter’s wedding. If gold prices are higher, the fund’s unit price will be proportionately higher. Unlike SGBs, which once bought are difficult to sell untill redemption, gold ETFs can be sold anytime during stock market trading hours.

While Gold ETF are easier than SGBs to buy and sell, if you sell these ETF units before 3 years, you will pay a short-term capital gain tax as per your income tax slab. So its advisable to hold Gold based ETFs for at-least 3 years to minimize your taxes.

Remember we are suggesting only gold-based ETFs and not gold-based mutual funds that invest in gold mining companies too.

3. A Fixed deposit for your gold: Another way to monetise your bank locker is to avail of Gold Monetisation Scheme (GMS), authorised by the Government. You give your existing gold (held in form of bars, coins, jewellery) to designated branches of certain banks, who then test the purity of your gold through authorised collections and purity centres or authorised jewellers. Based on the value of the gold, you earn interest for a certain period of time. While you will earn interest annually in rupee terms, on maturity, you will get an amount equal to the quantity of the gold in your account multiplied by the gold rates prevailing at that time.

You can deposit minimum of 30 grams of your existing gold (held in form of bars, coins, jewellery) with a designated branch of a bank.

Earn annual interest ranging from 0.50% to 2.50% over a chosen deposit period of 1-3 year, 5-7 or 12-15 year period.

There will be no tax on the interest you earn and the maturity amount for such gold deposits.

4. An investment option that shines more than the gold, literally: Read ahead only if you are OK to detach with the gold as your only safe haven investment. I recommend that part of the gold holdings that you may decide to monetise, can be invested in superior investment options which are risky but have a potential of giving superior returns (percentage difference in the amount we invest and amount when get on getting out or on sale). The reason is that, gold prices over the 5 years haven’t really gone up much, whereas other investments like shares or mutual funds that invest in shares have doubled the money over the same period of time.

A one-time investment of Rs 1 lakh in gold, five years ago, would be worth just Rs 1.60 lakh today.
A one-time investment of Rs 1 lakh in an exchange-traded fund (Nifty-based ETFs) that invests in a basket of top 50 stocks, five years ago, would be valued at Rs 2.24 lakh today.

Therefore after consulting your financial adviser or a mutual fund distributor, you can park your gold sale proceeds in equity-based actively traded mutual funds wherein a qualified fund manager will analyze a basket of stocks to invest OR you can consider passively managed equity funds which invest in a basket of stocks and keep invested in it always.

To know more about how you can deploy your gold proceeds into mutual funds, reach out to us at rachna@thegreatgruhini.com or call us at 8591634901.