Whether it is national branded jeweller Tanishq or Chennai's GRT Jewellers, most jewellers have gold savings schemes running. Are these a good investment option?
One should never judge a scheme with all its dazzling glittering cover. Always do your own research before you commit your hard earned money. There are many stores running these schemes but schemes are more or less similar. A typical one allows you to deposit a fixed amount every month for the chosen tenure. When the term ends, you can buy gold (from the same jeweller) at a value that is equivalent to the total money deposited, including some bonus amount. This conversion is done at the gold price prevailing on maturity. In most cases, the jeweller adds a month's installment at the end of the tenure as a cash incentive or may even offer gift item.
There is another form of savings scheme, which lets you book small quantities of gold every month at the prevailing rates, instead of converting the savings into gold at the final price. For instance, one multibrand jewellery store offers a scheme , wherein you can book gold every month in multiples of 1 g at the existing gold rate for 18 months. At the end of this period, you can redeem the total amount of gold booked, regard less of the price on the redemption day. However both types of schemes allow you to buy only jewellery, not gold coins or bars.
There could also be the promise of ‘zero' wastage and lower making charges on the jewellery you purchase out of these savings.
But gold savings schemes usually come with fine print that states that the ‘zero' making charge claim is valid only on select pieces. Intricate designer jewellery may see a higher levy. Now, wastage and making charges can substantially reduce the amount of gold one can buy for a particular ‘investment', ranging typically at 20-25 per cent of value.
There is also the problem of buying a piece of jewellery that corresponds exactly with what you have accumulated in your savings scheme. If you are going to buy gold of a higher weight than the value of your savings, you will have to pay full wastage and making charges. Then, to avail of the bonus amount, one should have completed payment of all the instalments. If he stops in between he forgoes the bonus. Finally, if gold prices head northwards while you are in the scheme you will stand to lose, as you will be swapping your savings for jewellery at the then prevailing price. If you opt for the second scheme, where you buy a certain grammage of gold every month, you circumvent the above risk. But these schemes do not normally carry the ‘bonus' advantage and benefits such as zero making charges.
What to watch out for
High making charges:
At the end of the term when you actually buy the ornament, the seller will levy making charges. Usually, these are very high and can go up to 30% of the value of the item, depending on the extent of workmanship involved A high making charge could effectively wipe out any saving you make through the additional installment or bonus. Some jewelers throw in a 30 50% discount on the making charges, while a few waive it completely in case of plain gold jewellery
No control over gold price:
In many schemes, the jewellery you purchase at the end of the tenure is available at the prevailing market rate. Since there is no way to lock in to the purchase price, you cannot know the actual cost of conversion. If this final price is much higher, your money will fetch smaller quantity of gold than the one you would have got by booking at the current price. You will only benefit if the price of gold at the end of the term is lower.
Agree to seller's terms:
When you opt for any of these schemes, keep in mind that you will have to ultimately buy gold from the same jeweler and he will not give you cash in return. This means that you cannot negotiate with him on making charges, which differ from seller to seller. In the normal course, you could have hunted for good deal by haggling with multiple sellers.
Absence of any regulator for GSS offered by jewelers
The gold savings schemes run by jewelers are not monitored or regulated by any regulators like SEBI, RBI, etc. So as an investor you cannot be sure of how your money is being utilized.
Conclusion:
But if you still want to go in for a “Gold Savings” scheme go for it but not without understanding the scheme carefully. The other way of investing in gold is through Gold ETF or Gold savings schemes of mutual funds. Through Systematic Investment Plan (SIP) of gold mutual funds one can affordably have disciplined investment in gold. One can invest as little as Rs 100 every month in gold funds. Since you buy at different price points, you can average out the purchase price of gold.
