Gold purchases are a major chunk of wedding expenses. With gold prices remaining high and showing few signs of coming down, various jewellers offer monthly saving schemes through which people can set aside funds for buying jewellery. We look into the merits of such schemes and if it makes sense to use them as an investment.
There are various gold investment options being promoted by jewellers and investment companies. Satyug Gold, a new gold retail chain, is offering gold coins and bars at discounts but with a lock-in period for delivery. You will get a discount of 15 per cent with a lock-in of two years, 24 per cent for three years, 30 per cent for four years and 37 per cent for five years.
Another popular option is the gold saving schemes being offered by various jewellery houses. The buyer deposits a fixed amount with the jewellery house for 11 months. At the end of the year, the jeweller puts in the 12th instalment.
Gold saving schemes work like bank recurring deposits or RDs. The investor deposits a fixed sum every month with the jeweller for a certain period, usually a year, and at the end of the tenure gets a bonus, usually one or two instalment (s). The examples of these schemes include Tamanna by Gitanjali Jewels and Golden Harvest by Tanishq.
To see how these schemes work, consider an example. A person deposits Rs 2,000 every month for 12 months and the jeweller pays an additional instalment. At the end of the tenure, he can buy jewellery worth Rs 26,000 (12*2,000= 24,000+2,000 = Rs 26,000). The gain percentage comes at 8.33%. Some jewellers, for instance PC Jewellers, pay two instalments as bonus, which amounts to a gain percentage of 16.67% for the investor. On the face of it, it’s not a bad deal at all.
“These are not investment schemes. These are more like sales promotion schemes. The idea is to exploit people’s basic need to buy jewellery,”
CAN’T TAKE CASH BACK
These schemes don’t give the option of taking cash instead of jewellery. You have to buy jewellery for the full amount even if you don’t want to. No cash is paid even if you stop making payments mid-way. Also, jewellers deduct an administration charge in case of premature closure of the account. For instance, TBZ charges Rs 500 if the investor backs out after seven days of enrollment but before paying the third instalment. Investors have no option but to buy jewellery after paying the third instalment. Before that, they can get the cash back.
PAY FOR MAKING CHARGES
By making it easy for investors to buy gold, the jeweller is ensuring confirmed sales, on which he can charge a making fee, Investors can’t opt for gold bars and coins on which making charges are much lower than on jewellery.
SHOULD YOU INVEST?
“These schemes help investors who are not organised with their finances. This prevents them from making financial mistakes such as taking a loan, etc, for buying jewellery,”
But those who are disciplined and want to invest in gold to benefit from the expected price rise should go for gold exchange-traded funds, or ETFs, offered by mutual funds.
“If somebody has a long-term view on gold and wants to save for, maybe, his daughter’s wedding a few years down the line, ETFs are a low cost-alternative. The investor can sell the units at the prevailing gold price and buy jewellery from anywhere,” For investment in gold, ETF and gold savings plans are better options.
