AVOID GOLD SCHEMES INSTEAD BUY ETFS OR GOLD COINS DIRECTLY

Gold jewellery shops across the country have been offering gold purchase plans for many years now. Typically, these schemes collect monthly instalments from customers for at least 11 months, after which the investor gets benefits in the form of concessions or discounts on the principal, which can be redeemed against gold jewellery sold by the jeweller.

Golden Harvest by Tanishq, Kalpavruksha Plan-Super by Tribhovandas Bhimji Zaveri Ltd, Gold and Diamond scheme by Gitanjali Group and Jewels for Less by PC Jeweller Ltd are just some of such schemes.

Broadly, there are two types of gold saving schemes. In the first option, you have to deposit a fixed amount every month for a chosen tenor.

At the end of the instalment period, the jeweller contributes a months or two months instalments. At the end of the duration, you can buy gold worth the amount that you have invested in the scheme. Say, you invest Rs.2,000 per month from January for 11 months, or Rs.22,000, and the jeweller agrees to pay Decembers instalment of Rs.2,000. In January next year, you will be able to purchase jewellery worth Rs.24,000 from the jeweller.

Usually, you cant buy gold coins and bars under this scheme. In the second option, you have to deposit an amount every month and the jeweller will buy gold worth that amount monthly. Say, you invest Rs.5,000 a month, and we assume gold price to be Rs.27,777 per 10 gm. The jeweller will buy 1.8 gm on your behalf and keep it (jewellers purchase gold at the prevailing market rate).

At the end of the tenor, say, 12 months, you can buy ornaments worth the money that you have accumulated with the jeweller over the months. Unlike the first option, here the amount you invest can vary every month. These gold purchase plans usually have a tenor of 11-36 months.

However, almost all jewellers have now discontinued or are planning to wind up such schemes. According to the new Companies Act, 2013, which came into effect on 1 April 2014, all such gold schemes come under the definition of public deposits, and companies that take deposits have to limit their returns to 12% per annum. The Act also caps the total amount of deposit collection for each company to 25% of their net worth.

This means that the companies can run such gold saving scheme only if they lower the effective returns and also limit the total amount that is collected. There were instances where gold jewellers were even giving 16% per annum returns on an average.

All major jewellers have either stopped their gold purchase plans or have launched new schemes with some tweaks to adhere to the Act.

Such schemes were popular among customers and the halt will affect many retail buyers. Tanishq, for instance, had at least 1.5 million customers, and Kalyan Jewellers, 1.6 million

Most companies which operate such gold schemes and where customers have accumulated a 75% contribution are being offered jewellery for the said value or are offered a cash refund along with 15 days worth of contribution from the company

Looking at the new policy guidelines we believe that its It it better to stay away from such schemes. To invest in gold, it is better to purchase in the form of coins or gold exchange traded funds. We suggest that if someone is already invested here, then take any of the two exit routes open to you that is buy the jewellery, or take a cash refund.