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Gold leasing: A financial innovation in India

Created on 11 Jan 2023

Wraps up in 5 Min

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Updated on 12 Jan 2023

In India, gold has always been a precious metal, holding auspicious and cultural values. Indians invest in gold not only as an investment option but also as a means to protect themselves in times of emergencies. While holding gold in the physical form has feasibility issues, with the changing time, gold as an investment option has also transformed and become more innovative.

If you are thinking of digital gold and sovereign gold bonds, you would not be mistaken. But what if you were told there was another way to earn from gold? Wondering how? The answer is gold leasing. Gold leasing is a new-age investment option that allows investors to earn returns on their existing gold savings. Seems exciting? Read this article to learn more. 

What is gold leasing in India, and how does it work?

Digital gold investments have gained traction among investors in recent times. Well, gold leasing takes your digital gold investments a notch higher by helping you earn extra interest on top of annual gold returns.  

The way this works is your gold is leased to Jewellers who need the metal for their day-to-day business operations. Throughout the lease, you remain the owner of the gold (principal). The jewellers give you interest on a daily basis for the gold they have borrowed from you. This interest ranges between 4-5%. 

To take advantage of this investment option, you need to invest in digital gold apps that offer gold leasing, such as Gullak. You can lease your invested digital gold out to verified jewellers listed on the app. These jewellers will give you monthly interest on the gold owned by you. The returns are in the denomination of grams of gold. This is not very different from renting your house to someone & getting a monthly rental income.

You typically receive proof for a gold lease, and the returns are calculated on a daily basis and credited to your account in grams every month. You can invest in digital gold for as low as ₹10 daily and can lease it later. As per your convenience, you also have the option to un-lease your investments and get a return for just the period you leased the gold for. 

What are the benefits of leasing your gold online?

As you would know, gold as an investment offers several benefits, including value appreciation, hedging against rising inflation, and portfolio diversification. It is a safe haven for challenging times and is easy to liquidate, which is why investors prefer this alternative investment option. 

Gold leasing, in addition to providing all the benefits that come with gold investment, also offers additional benefits, as listed below.

5% Higher returns = A new asset class for your portfolio

Until now, gold was known as a traditional investment option for portfolio creation, with its average annual return being around 10%-11%. With gold leasing, this equation has completely changed as you get to leverage your saved gold for leasing and earn assured extra returns in grams every month. The interest rate depends on the platform you choose. For example, historically, gold has given 11% returns annually. Now, with Gullak Gold+, you can get an extra 5% gold on top of your leased quantity. This makes gold+ a 16% investment vehicle.

As a result, gold is no longer a conservative asset class. Gold leasing has opened the door for increasing overall portfolio return for investors while adding its characteristic of stable and consistent price appreciation.

Compounded interest + value appreciation 

As you know, gold’s value has been on a constant rise over the years. For example, the 24-karat gold price per 10 grams reached over ₹57,000 in 2022 from ₹18,500 in 2010. This is almost a 208% price appreciation in over 12 years. 

By leasing your gold, you accumulate more grams of gold as a return on the lease every month. This compounds over the years and thus gives you higher returns and more value appreciation. 

For example, If you lease out 100gm gold, by year-end, you will have 105 gms(extra 5% from gold leasing) which means 105gm will get the benefit of 11% predicted appreciation of gold price

How is gold leasing different from other ways of investing in gold?

Gold leasing is an investment avenue that involves gold, and thus it is common to imagine how it differentiates from other gold investments. If you are riding in the same boat, here is the answer. 

If you want to invest in gold online, your choices are likely to be digital gold, Sovereign Gold Bonds (SGBs), Gold ETFs, and gold leasing.

Typically gold leasing offers higher returns compared to other gold investment options as you earn compounding returns on your saved gold instead of simple interest rates. Also, with gold leasing, your interest is calculated daily and is credited to your account in terms of grams every month. 

Is Gold leasing safe?

Gold leasing is a relatively new investment option. Investors might have safety concerns before starting with this. In this section, we will go over how gold leasing ensures the safety of investors.

  • 100% Bank Guarantee is taken from the jeweller for the amount that is leased
  • On apps such as Gullak, investors can un-lease their leased gold anytime and receive the interest accumulated for the tenure
  • Apps such as Gullak verify the jewellers along with Augmont (One of India’s largest Gold refineries) before they onboard the jewellers on the app
  • The jewellers that are currently on board these apps have huge annual turnovers (upwards of ₹20000 Cr).

Like any investment instrument, it comes with a few risks, but the returns are great & the backing is strong, reducing the risk

The Bottom Line 

Gold leasing is a one-of-a-kind financial innovation in India. However, don’t misunderstand it for being a new avenue as it has always been prevalent in India, but mainly as a wealth creation tool for wealthy individuals. But no more! With gold leasing for retail investors gaining popularity and awareness, even small-ticket investors have started to explore this space by leasing their saved gold and earning extra returns in grams. 

The process of leasing your gold is completely online, seamless, and fast. Gold leasing allows you to add gold as an investment option to your portfolio, benefit from diversification, and create wealth over a period of time with additional returns and compounded value appreciation. 

Disclaimer: This article is sponsored by Gullak.

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Devanshee Dave

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Devanshee has 5+ years of experience in writing content on finance & economy, allowing her to have a strong gravitational pull over the subject matters. She is a finance enthusiast and enjoys simplifying finance to help readers turn mundane numbers and jargon into fun-to-learn concepts! Devanshee holds a Masters In Mass Communication and Journalism.

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