Given Indians’ yen for gold and the pressure on the current account due to its import, the Reserve Bank of India is considering introducing four gold-related instruments to ease the physical demand for the yellow metal.

The instruments are modified gold-deposit scheme (GDS), gold-linked account, gold-accumulation plan, and gold-pension plan, said RBI Deputy Governor Subir Gokarn at the Bankers Conference in Pune.

Under the modified GDS, which will be suitable for mid-size investors, physical gold is deposited with banks for a definite period and interest will be paid in the form of ‘gold’ after maturity.

However, gold will not be returned in the original form.

The gold-linked account will be a non-interest bearing account wherein gold will be purchased and kept abroad.

The yellow metal will be hedged abroad and physical delivery of the metal will not arise.

At the end of the maturity period, the customer disposes of the gold and gets equivalent of cash. This account will allow easy entry and exit.

The gold-accumulation plan will be like the systematic investment plan offered by mutual funds, that is, buy gold in small quantities at regular intervals.

Though the returns could fluctuate, over time the average cost of accumulation goes down. Physical delivery is quite low.

The gold-pension plan will be like reverse mortgage of property — where a homeowner can borrow money against the value of his home, and no repayment of the mortgage is required until the borrower dies or the home is sold.

Targeted at senior citizens, banks will open an annuity plan with insurance companies for a definite period. Though banks will not return the jewellery, the high return is expected to attract the gold owners, said Gokarn.

(This article was published on November 25, 2012)
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