Gold, the word itself triggers beautiful, magnificent and marvelous pictures of ornaments made from the yellow metal which any lady would die for. Gold ornaments give a grand & glorifying feel during weddings, functions and festivals. But going by the present scenario and increase in the prices of gold, it seems that this most sought after metal is getting out of reach of most of the people.
With the steady increase in gold prices, buying gold jewelry is increasingly becoming difficult as it requires a lot of planning and saving. To encash the situation, several jewelers across India have started offering Gold Jewelry Schemes. These schemes are gaining a lot of popularity these days. You put a certain amount every month in a gold jewelry scheme and get the bracelet or earrings or any other jewelry at the end of the scheme tenure. The gold companies (jewelers) have come out with schemes where you pay 11 installments instead of 12 and you can own a specific jewelry as per the amount contributed by you after a year.
Do Gold Jewelry Schemes Really Benefit You?
Let us do a reality check. Do these schemes really benefit you or is it only a new method to lure customers in the name of good investment?
Primarily, there are two types of schemes that are being offered under gold jewelry schemes. The first one is where in you put a fixed amount every month in a particular scheme and when your tenure ends you can opt for a jewelry matching the amount you invested in. In the second type of scheme, your monthly installment gets invested in gold from the very first day under prices that are prevailing and when your tenure ends you can convert the same in an ornament.
When you go for the first scheme, the jeweler pays one installment at the end of tenure as bonus while you end up paying only 11 installments. So by opting under this scheme you earn approximately 12-15 percent interest compounded annually. However, you need to keep in mind that this return would not be credited to your account as cash as you will only get it converted in the form of gold jewelry.
Now, there is another catch. While jewelers’ claim that they would not take any making charges or promise you zero wastage, this in real terms is not true. You may be lured in terms of designer jewelry that would undoubtedly call for making charges and talking of wastage then that alone can reduce the amount of gold that you can buy for a specific investment by 18-22 percent in value.
There is another thing that you need to keep in mind. Generally it is difficult to fetch jewelry exactly of the same amount as you have invested. Say for example you opted to put in Rs 5000 every month in this scheme. At the end of the year you paid Rs 55,000 and Rs 5000 were paid by the jeweler taking your investment to Rs 60,000. You should note that when you go to buy jewelry, finding a piece exactly of the same amount is quite difficult. You may find a bracelet of Rs 75,000 very attractive and impressive and thus end up shelling out the difference from your pocket.
There is another catch. If you wish to avail the bonus of that one installment being paid by your jeweler it is important for you to pay all your installments. If you stop any payment in between you end up losing the bonus. Lastly, while you stay invested the prices of gold rise and you are bound to lose due to the law of “Then Prevailing Rates” as proclaimed by the jewelers.
If you lay your hand on the second option wherein you convert your investment in certain gram of gold you tend to lose on the bonus advantage and also the ‘zero making charges’ that may be applicable on select jewelry items.
Buying in installment and keeping money intact specifically for buying gold can be just one benefit that you can get out of these gold jewelry schemes. Those who want to invest systematically to buy gold for marriage purposes and have difficulty in holding liquid cash can also opt for these schemes. However, if you view it as some kind of investment strategy then you are mistaken.
One may put forward the premise that these schemes provide better returns than recurring deposits in banks but you have to remember that the banks are regulated by RBI whereas jewelers do not fall under any regulatory body. So in terms of risk as well if you end up investing a substantial amount with small time jewelers there is a certain risk involved as jewelers are not bound by any governing rules as the banks.
Better Options of Gold Investment
Investing in gold exchange traded funds (ETFs) could be a better option than engaging yourself in gold jewelry schemes as you don’t need to buy physical gold and your investment increases along with increase in the price of gold.
If wedding is on cards in a few years and you wish to gift gold jewelry to your near and dear ones and you don’t own a lump sum amount for the same then gold jewelry schemes may work in your favor but if investment is on your mind then there are better ways to churn capital gains than getting stuck with these schemes.
Megha Sharma works as a guest lecturer in Delhi. She holds an MBA & Doctorate from the UPTU. With extensive knowledge and experience in various financial products, she also works as a consultant in banking & finance domains wherein she offers advice to her clients in managing personal finance.
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