Gold Leasing in India: Earning Returns on Idle Assets Amidst Risks

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?

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?

The first question investors should ask is whether the platform is associated with an RBI-regulated institution or if it operates under recognised industry standards, according to Singh.

Storage arrangements deserve equal attention.

Since investors are handing over physical gold, they should verify where the gold will be stored, whether reputed vault operators are involved and what insurance arrangements exist.

Examining the platform's operating history, management credentials, customer satisfaction record and exit conditions before investing, he recommends.

Kothari believes investors should go a step further.

They should verify whether the ownership of the gold remains legally segregated from the platform's own assets. This becomes particularly important if the platform were ever to face financial difficulties.

What happens if the platform or jeweller defaults?

Investors currently have no statutory safety net if a private platform or jeweller defaults, according to Kothari.

Although industry initiatives such as DPMACI (Digital Precious Metals Assurance Council of India) formed by industry players including Augmont, Safegold and MMTC-PAMP are working towards independent trustees, audits and grievance mechanisms, these remain voluntary standards rather than legal protections.

"The responsibility for returning the gold ultimately depends on the contractual arrangements," he says.

This makes the legal documentation almost as important as the return being offered.

How is gold leasing taxed?

The tax treatment depends entirely on the route chosen.

“If the investment is done via the government backed Gold Monetization Scheme (GMS), it’s the most tax efficient instrument as the interest earned is fully exempt and there is no capital gains tax on redemption,” says Singh.

However, in case the investor opts to lease via private platforms, the returns are considered as income from other sources and taxed as per their slab bracket. In addition, capital gains tax is also levied in case of sale of the gold, he adds.

For many investors, therefore, post-tax returns may differ substantially from the headline yield advertised by the platform.

Who should consider gold leasing and who should avoid it?

“Gold leasing suits investors with substantial idle physical gold (50+ grams), a medium-to-long horizon, and high risk tolerance for unregulated instruments. With yields at 2.75–4.5%, participation is viable only when the opportunity cost of idle gold is explicitly weighed,” says Kothari.

On the other hand, investors should think carefully before leasing gold that forms part of their emergency savings or is earmarked for an upcoming wedding or other important family event.

Gold intended for near-term use should generally remain easily accessible.

Before handing over physical gold, investors should look beyond the advertised yield and carefully examine the platform's regulatory status, custody arrangements, contractual protections and exit terms.

When it comes to gold leasing, experts say the quality of the institution holding your gold may ultimately matter more than the return it promises.