Over the past one year Gold prices have zoomed up about 40%. To counter the price rampage, jewelers have come up with big incentives on their gold savings schemes, which have been in vogue for nearly a decade now. Whether it is national branded jeweler Tanishq, Delhi based P C Jewellers, Mumbai’s leading gold retailer Tribhovandas Bhimji Zaveri or Chennai’s GRT Jewellers, most jewellers have gold savings schemes running.
Gold jewellers typically offer two types of gold saving schemes:
First, deposit fixed amount every month for a fixed period with the jeweler. At the end of the period some bonus is added by jewelers and the total amount can be used to buy jewellery. The bonus amount is generally equivalent to one month’s installment for a one-year scheme and paid at the end of the scheme. Here, the saver ‘earns’ an effective return of 15% (compounded annually) on his savings.
The second option is to have the monthly installment invested immediately in gold, at the prevailing price. At the end of the installment period you can convert it into your favorite piece of jewellery.
These schemes also at times come with the promise of ‘zero’ wastage and lower making charges on the jewellery you purchase out of these savings.
It works like an informal saving banks account.
Jewelers give a card or booklet (called passbook) which is updated with every deposit you make.
For payment, you must deposit a cheque every month or give post-dated cheques. Some jewellers also offer the ECS facility, where a fixed amount is automatically transferred from your account into their account.
The return in Gold saving scheme varies with the terms of each jewelers. If we consider Tanishq “11+1” Plan where you pay 11 installments while Tanishq pays the 12th installment, the returns are in the range of 17%. But the catch is these returns are nominal, you cannot cash it out, and you can use the amount to buy jewellery only.
Though 17% in the above calculation seems very attractive but you should also keep in mind the following points of caution:
Gold Saving Scheme may look in terms of returns but also have risks. The other option is to do a similar investment in Gold Mutual Fund or a Gold ETF.
Advantages of Gold ETF:
Gold Saving Scheme seems to be a good option for people who are looking to buy jewellery in near term (1 – 2 years) for some specific occasion like marriage, but keep in mind it’s not an investment. It’s at best a saving scheme for purchasing jewellery. Also you should be careful which jeweler to go with. You would want to stick with well known brands having a lot of option of jewellery to choose from.
On the other hand if you are looking for investing in Gold then Gold ETF, Gold Mutual Fund and e-gold is the best option in terms of taxation, safety and convenience.
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My experience with gold saving scheme was not great. would not recommend anyone to opt for it.
Could you come up with more details on your experience. I am sure this would help many buyers in their future buys.
I agree etfs are much more transparent and tax efficient
True.. So which ETF have you invested?
You mean Gold Saving Schemes is not covered by government? Is it be the same in every country that have Gold Saving Schemes ?
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