For generations, Indians have bought gold primarily for two purposes: as jewellery and as a store of wealth. However, once purchased, that gold often remains locked away in bank lockers or home safes for years without generating any returns. Gold leasing seeks to change that. While the government-backed Gold Monetisation Scheme (GMS) offers a regulated framework with specific tax benefits, many newer private gold-leasing platforms operate outside a formal regulatory regime.That difference can have significant implications for investor protection. What is gold leasing and how does it work?ET Online
Gold leasing risks Gold leasing is similar to earning rent on an asset. Instead of selling your gold, you temporarily make it available to another party in exchange for a return. The process begins with evaluating the purity of the gold, says Simranjeet Singh, CEO – SME & Retail Business, Anand Rathi Global Finance. For investors participating through the Gold Monetisation Scheme, the first step is to visit a BIS-authorised Collection and Purity Testing Centre (CPTC), where the gold is tested and converted into the required form. Once the purity is certified, the investor deposits the gold with a participating bank, which issues a deposit certificate specifying the quantity, tenure and applicable interest. "With this process completed, the customer’s gold in effect becomes a financial asset," Singh explains. The bank pools these deposits and leases the gold further to jewellers and other borrowers. A portion of the lease income earned by the bank is passed on to the depositor in the form of interest. At maturity, investors receive either gold or cash, depending on the terms of the deposit. Private gold-leasing platforms broadly follow a similar economic model, although their operational structure, counterparties and investor protections can differ significantly. Is gold leasing safe? The biggest risks investors may overlook While investors can potentially generate an annual return while continuing to benefit from changes in gold prices, experts caution against focusing only on the headline return. Unlike a fixed deposit, the return on many private gold-leasing platforms is not necessarily fixed. “Except for government backed schemes like Gold Monetization Scheme deposits which may offer fixed returns, largely most of the platforms offer variable returns linked to multiple factors including gold rate, demand etc,” explains Singh. If lease demand falls, investors may earn less than initially expected. Similarly, where returns are paid in gold, fluctuations in gold prices can influence the effective value of those returns. But perhaps the most important question is not how much investors can earn, but how safe their gold remains after it is leased. “Gold leasing falls outside direct RBI regulation. SEBI has explicitly cautioned that digital gold products are neither notified as securities nor regulated as commodity derivatives, placing them outside its investor protection framework,” according to Prithviraj Kothari, President, India Bullion and Jewellers Association (IBJA). As a result, many private gold-leasing arrangements operate without the statutory investor protection available in regulated financial products. "Until statutory oversight is established, investors must treat this gap as a material risk, not a minor technicality. Diligence on platform governance is non-negotiable," advises Kothari. One of the biggest risks is counterparty default. If the borrower or platform fails to return the gold, investors generally do not enjoy the type of protection available for bank deposits. "Unlike bank deposits, leased gold carries no government insurance, and private insurance claims vary significantly by provider," Kothari cautions. He adds that many investors underestimate liquidity risks and operational complexities. "Critically, retail investors overlook the cost asymmetry: a 3–4% annual yield cannot adequately compensate for potential complete principal loss," he adds. How should investors evaluate a gold leasing platform?ET Online
