Traditional modes of investing in gold (investing in jewellery, gold coins and bars) have historically been the most popular way of buying the yellow metal. In order to attract more and more people, jewellers have introduced schemes which help investors in saving small amounts regularly. Gold saving schemes require investors to periodically deposit money with jewellers in order to buy jewellery after a certain fixed period. Floated by most jewellers in the country, such schemes are especially popular with big players like PC Jewellers, Tanishq, Tribhovandas Bhimji Zaveri and Gitanjali among others.
Types and Working of Gold Saving Schemes:
Gold savings schemes are of two types:
Money deposited periodically with jeweller: Under this scheme, you deposit a fixed amount every month for a fixed period. The amount which is accumulated is converted to an equal value of jewellery on maturity of this period. A bonus is offered to you by the jeweller, which is either one or two month’s instalment amount. Tanishq’s Golden Harvest scheme follows this model. The duration of the scheme is 12 months. You have to pay 11 monthly instalments of let’s say, Rs.5,000 each to Tanishq. At the end of 12 months, Tanishq contributes one month’s instalment, ie: Rs. 5,000 to your accumulated pool of money. You can now purchase jewellery worth Rs. 60,000 (11 x Rs.5,000 + Rs.5,000) at the end of 12 months. The bonus paid by the jeweller in this case is 1 month’s instalment.
Money deposited periodically is immediately converted to gold: Here, you deposit a fixed amount every month for a fixed period. But unlike the previous type, this money is immediately converted into an equivalent value of gold. The total gold collected can then be converted to jewellery on expiry of the period.
Consider the following 3 cases offered by GRT Jewellers under this scheme:
Types and Working of Gold Saving Schemes:
Gold savings schemes are of two types:
Money deposited periodically with jeweller: Under this scheme, you deposit a fixed amount every month for a fixed period. The amount which is accumulated is converted to an equal value of jewellery on maturity of this period. A bonus is offered to you by the jeweller, which is either one or two month’s instalment amount. Tanishq’s Golden Harvest scheme follows this model. The duration of the scheme is 12 months. You have to pay 11 monthly instalments of let’s say, Rs.5,000 each to Tanishq. At the end of 12 months, Tanishq contributes one month’s instalment, ie: Rs. 5,000 to your accumulated pool of money. You can now purchase jewellery worth Rs. 60,000 (11 x Rs.5,000 + Rs.5,000) at the end of 12 months. The bonus paid by the jeweller in this case is 1 month’s instalment.
Money deposited periodically is immediately converted to gold: Here, you deposit a fixed amount every month for a fixed period. But unlike the previous type, this money is immediately converted into an equivalent value of gold. The total gold collected can then be converted to jewellery on expiry of the period.
Consider the following 3 cases offered by GRT Jewellers under this scheme:
As you can see, if the customer chooses jewellery which is equal to the weight of the accumulated gold, he does not have to pay any extra wastage charges. Any difference in quantities and the wastage percentages will have to be borne by the customer. Such plans usually do not have bonus. However, it gives protection against rising gold prices.
The Pros and Cons of Gold Saving Scheme:
While the advantage of this scheme to investors is that it helps in encouraging regular savings, to invest in gold after a period of time, the negatives are many. The biggest drawback is that you are compulsorily required to purchase the jewellery from the same jeweller at the prevailing market price and not at the average price during your investment period. The prevailing price may be higher than the average price. Further, you are bound to follow the jeweller’s terms and do not have the freedom to compare charges or designs with other jewellers. The bonus you get, if any, depends on your prompt payment of instalments. Further, this scheme results in purchase of jewellery only and does not give cash benefit in your hands.
Taxation:
When jewellery is bought at the end of the period, you must pay any taxes applicable on jewellery purchases. Cash purchases above Rs. 5 lakhs attract tax at 1% of the purchase amount.
The Verdict:
Gold saving schemes which allow immediate conversion to gold is better than the first option when conversion takes place at the expiry of the period, as you are protected from price-rise. However, it is not advisable to bind yourself to any particular jeweller. These schemes may not be good for you if your sole purpose of buying gold is from an investment perspective. In such a case, you can opt for gold ETFs or E-Gold. Physical gold investments can be made in gold coins or bars which do not entail making charges. Click here to understand more on different ways of buying gold and which will suit you the best.
Please note that the examples given above for the schemes by Tanishq and GRT Jewellers are for illustration purposes only and do not represent the actual scheme. Please contact individual jewellers for actual details of the schemes. #gettingyourich.com
Smitha Hari
Team GettingYouRich.com
The Pros and Cons of Gold Saving Scheme:
While the advantage of this scheme to investors is that it helps in encouraging regular savings, to invest in gold after a period of time, the negatives are many. The biggest drawback is that you are compulsorily required to purchase the jewellery from the same jeweller at the prevailing market price and not at the average price during your investment period. The prevailing price may be higher than the average price. Further, you are bound to follow the jeweller’s terms and do not have the freedom to compare charges or designs with other jewellers. The bonus you get, if any, depends on your prompt payment of instalments. Further, this scheme results in purchase of jewellery only and does not give cash benefit in your hands.
Taxation:
When jewellery is bought at the end of the period, you must pay any taxes applicable on jewellery purchases. Cash purchases above Rs. 5 lakhs attract tax at 1% of the purchase amount.
The Verdict:
Gold saving schemes which allow immediate conversion to gold is better than the first option when conversion takes place at the expiry of the period, as you are protected from price-rise. However, it is not advisable to bind yourself to any particular jeweller. These schemes may not be good for you if your sole purpose of buying gold is from an investment perspective. In such a case, you can opt for gold ETFs or E-Gold. Physical gold investments can be made in gold coins or bars which do not entail making charges. Click here to understand more on different ways of buying gold and which will suit you the best.
Please note that the examples given above for the schemes by Tanishq and GRT Jewellers are for illustration purposes only and do not represent the actual scheme. Please contact individual jewellers for actual details of the schemes. #gettingyourich.com
Smitha Hari
Team GettingYouRich.com
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