How can gold buying schemes by jewellers help?

Gold Watch jewel trendzGold has become an inseparable part of Indian lifestyle. Be it any occasion, people always prefer buying gold over other metals as it has been considered as sign of purity and safe haven. They are major chunk of wedding expenses. As gold prices continue to remain high and the chances of rates going down is bleak, many renowned jewellers are offering monthly saving schemes through which people can set aside funds for buying jewellery. Lets learn more about this schemes and how have been they proving to be helpful to the buyers.

Gold saving schemes have been popular with individuals as they help plan gold purchases for an occasion and also help one to save money. They function like bank recurring deposits or RDs where the investor deposits a fix sum every month with the jeweller for a certain period, usually a year, and at the end of the tenure gets a bonus in form of one or two installments.

There are several popular gold saving schemes from renowned jewellers like Golden Harvest by Tanishq, Tamanna by Gitanjali Jewels, Monthly Installment Scheme by Malabar Gold and Diamonds, Kalpavruksha Plab by TBZ, Sawansukha Jewellers, Savings Scheme by GRT and many more. Sandeep Kulhalli, vice president, marketing and retail, Jewellery Division, Titan Company Ltd. says, “These help consumers plan jewellery purchases. There is also the flexibility of purchase. With offers like these, women of all age and income levels can plan jewellery purchases. Our schemes endeavor to make purchase of gold jewellery easier for everyone.”

How does this schemes work?

A gold saving scheme collects monthly instalments from customers for at least 11 months, after which the investor gets some benefits (concessions or discounts) on the principal, which can be redeemed against gold jewellery sold by the firm in the 12th month.

For example, the Golden Harvest scheme by Tanishq, which has at least 1.5 million customers, requires the customer to pay advance installments for 11 months. The 12th month instalment is paid by Tanishq and the accumulated amount can be redeemed against gold jewellery by the customer. The minimum monthly installment amount for Golden Harvest is Rs.500.

Let is consider another example, a person deposits Rs 2,000 every month for 12 months and the jewellers pays an additional installment. At the tenure-end, 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 installments 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.

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In few other schemes, gold worth one installment is credited to the investor’s account by tenure-end, when he would be able to purchase jewellery equal to the gold accumulated. In the 12-month Swaminidhi scheme by Tanishq, investor has the option for fixed or flexible payment options. In the flexible option, the investor can par as per their convenience. However, in both cases, the minimum payment has to be Rs. 2,000 per month while additional installments need to be in multiples of thousand.

Such schemes work well for the investors, if gold prices are rising. But if the prices fall during the tenure, the investors are prone to make loss.

Experts say these schemes are not really an investment

 “These are not investment schemes. These are more like sales promotion schemes. The idea is to exploit people’s basic need to buy jewellery,” says a Certified Financial Advisor.  According to the analysts, the schemes are more of business promotion tactics for jewellery brands and retailers as it would create a sale of jewellery every month.

Analyst shares, “The schemes are just means of getting customers (ladies) involved in the scheme, so that their sales are on track. Jewellers know that most of the times customer especially ladies exceed their budgets in jewellery purchase. Hence after completion of 11 months they tend to buy jewellery of a higher amount than they had initially invested.  According to jewellers, the last installment is the bonus which you earn when you buy jewellery at the end of the term. In these Gold savings schemes you have to buy the gold jewellery only, not bars or coins and you would be charged jewellery making charges as well.”

 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 installment. Investors have no option but to buy jewellery after paying the third installment. Before that, they can get the cash back.

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Should you invest?

Gold prices fell in 2013 but are still around Rs 30,000 per 10 gm. So, if you are planning to buy jewellery, say, for your daughter’s wedding or for gifting, it makes sense to opt for such schemes. “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,” says Jhaveri.

Analyst says, “The advantage is if you have some savings left at the end of the month, the gold saving schemes helps in making some savings for those who are unable to make any savings. Or if there’s a marriage is in the family in 1-2 years, you are able to possess at least 1-2 pieces of jewellery which you can consider gifting without feeling the heat of high gold prices.”

Gold ETFs – a better option

Gold ETFs are far better option where the price of gold remains same as the market price of the gold. They are also safe as they are listed and you have the option of converting them into physical gold whenever you want to. They are tax efficient too.

Gold ETFs also offer more flexibility as one can invest any amount. Besides, one gets direct exposure to gold, without any making charges etc. Also, in most gold saving schemes, investors buy gold at prices prevailing at the end of the tenure. They don’t benefit if there is a fall in the price during the scheme’s tenure. In ETFs, if the price falls, more units are credited to the investor’s account, which he can redeem at the prevailing market price. Mutual funds also offer gold funds which invest in gold ETFs. In this, the investor can opt for a systematic investment plan.