"It is safer and economically more stable to go under both these schemes," Finance Minister Arun Jaitley said after the Cabinet meeting.
The Gold Bond scheme will have an annual cap of 500 grams per person and such bonds would be issued for a period of 5-7 years.
"The Cabinet today cleared the Gold Bond scheme. Under this scheme instead of buying physical gold, Indian residents can buy the gold bonds," Jaitley said.
The Budget 2015-16 had proposed to launch a Sovereign Gold Bond (SGB) scheme to develop a financial asset as an alternative to gold.
The bonds will be issued in 2, 5 and 10 grams of gold or other denominations and the tenor of the bond could be for a minimum of 5-7 years so that it protects investors from medium-term volatility in gold prices, Jaitley said.
As regards the Gold Monetisation Scheme, the minister said people holding idle gold can deposit it in banks for either short, medium or long term.
"This is not a black money immunity scheme and normal taxation laws would be applicable," Jaitley said when asked if this was an immunity scheme.
He said around 1,000 tonnes of gold is imported annually and people hold such quantum of idle gold just for investment purpose every year.
By taking advantage of gold monetisation scheme, people can deposit idle gold with authorised agencies and take advantage of the price escalation of gold as well as earn interest on the deposit, he said.
Jaitley said: "The deposit tenure would be short, medium or long term and if the idle gold is deposited in banking system then at the time of redemption people can get the actual value of gold and physical gold can be obtained if it is a short-term deposit. Besides, people will also get the interest."