One could make 4-5% additional returns on top of average gold appreciation which makes gold a 14-16% returns asset class putting it in the category of high-return investment options. With gold leasing being made available to every Indian, India is now seeing a paradigm mental shift & this could be a gamechanger in the way gold investments are perceived.
Gold leasing: A practice that was available only to a few
Gold leasing was a practice that existed in the offline market for a couple of years but was limited only to the ultra-rich who had a strong connection with the jeweller & possessed multiple kgs of gold that they could lease out. Today through innovation in technology, any user can lease out as low as 0.5 gms of digital gold & create extra wealth via the same.
How does gold leasing work?
The way gold leasing works is, your gold (physical/digital gold) is leased out to large jewellers who in return give you a daily interest. The interest paid out is in the form of gold gms, which means your interest would also be growing as Gold prices go up & the interest is compounded every year.
Is gold leasing safe?
The jewellers provide a 100% bank guarantee against the lease that they take, a mandate to ensure the security of customers' gold. This helps in case of default. Also, a lessor would remain the owner of the gold that is leased out to jewellers throughout the lease tenure & a formal agreement is made with the jewellers for the same.
Gold leasing tenure
Lock-in periods of a gold lease are at the discretion of the tech platforms, however, some platforms have no lock-in and allow instant withdrawals in terms of cash or gold. The interest accrued till the date of withdrawal along with the principal is deposited in the customer's account.
Gold leasing vs SGBs
Sovereign Gold Bonds (SGB) are government securities denominated in grams of gold. The bonds are issued by the Reserve Bank of India on the government’s behalf. These gold bonds are a substitute for physical gold & investors get a fixed interest of 2.5% p.a. gold leasing is a way to earn extra 4-5% returns on top of your Gold.
Returns- SGB give a fixed simple interest of 2.5% p.a on the principal amount. While gold leasing gives extra 4-5% returns (compounded) on top of your gold. Also, you will get returns in gms in gold leasing, while in SGBs, you will get a return in cash.
Lock-in - SGBs typically have a lock-in period of 8 years, while gold leasing provides you the flexibility of no lock-in period.
Withdrawals- If you want to break SGB before 8 years in the secondary market, you need to sell it at a discount of 6-8%. While in gold leasing, you can sell it anytime at a 2-3% discount (typical sell spread).
Calculation comparison
| Year | Gold price/10gm* (Rs) | Gold leasning@5% (Rs) | SGB @2.5% (Rs) |
| 0 | 57780 | 10gms = 5,77,800 | 10gms - 5,77,800 |
| 1 | 64,136 | (10gms + 0.5 gms extra gold) 10.5gms = 6,73,425 | (10gms + 2.5% of 5,77,800) 64136+14445 = 6,55,803 |
| 2 | 71,191 | (10.5gms + 0.53 gms extra gold) 11.03gms = 7,84,878 | (10gms + 2*2.5% of 5,77,800) 71191+28890 = 7,40,800 |
| 5 | 97,363 | (11.03gms + 1.73 gms extra gold) 12.76gms = 12,42,622 | (10gms + 5*2.5% of 5,77,800) 97363+72225 = 10,45,855 |
| 8 | 1,33,156 | (12.76gms + 2.01 gms extra gold) 14.77gms = 19,67,323 | (10gms + 8*2.5% of 5,77,800) 133156+11560 = 14,47,120 |
How can you lease out gold?
One needs to own physical/digital gold to get the extra returns via leasing. Some apps allow users to lease out their digital gold. The process is instant & is fairly simple - It only needs your PAN for KYC. The app collects multiple users' digital gold & forms a pool of a few KGs of gold to lease out to jewellers.
Should you invest in gold & lease it out?
Experts predict that gold prices will touch an all-time high mark of ₹62,000 in 2023 which makes now a good time to invest in gold. Extra 5 % returns on top of 11% gold appreciation makes this a 16% returns asset class beating a majority of mutual funds as well. Now might be a great time to explore old investments & gold leasing options.
It is an innovative way to invest in gold but always make sure that you are dealing with a registered platform.
Anushka Trivedi is a freelance financial content writer. She can be reached at anushkatrivedi.com
