Gold is considered to be an integral part of an Indian household. No doubt, we are the largest buyers of gold in the world. With gold prices hitting the roof, It has become a matter of concern for lots of Indian families who are finding it difficult to buy gold. Now, various companies have come up with gold jewellery schemes to lure the jewellery buyers. The gold jewellery companies offer schemes where a customer has to pay only 11 instalments out of 12 and the rest is borne by the company.

Example
Ms Sunita from Delhi wanted to buy 20 grams gold for investment, but she did not have enough money. The jeweller offered a scheme under which she could buy the gold jewelry after one year at the prevailing market rate after paying 12 monthly instalments. She also got the offer that the last instalment would be paid by the jeweller himself after she completes the 11th installment on time.
It means for Rs 60,000 jewellery, she had to pay Rs 55,000 in 11 months, and Rs 5,000 will be paid by the jeweller.

Benefit of gold jewellery scheme
The only benefit that a buyer gets in this type of scheme is buying in instalments and keeping money intact for this objective. From a buyer’s point of view, this type of scheme will lead to more loss than gain.

Limitations
The instalment paid, can be used only to buy the jewellery, and it cannot be redeemed against gold biscuits or coins. As shown in the table, jewellery also carries the making charges, and its purity is lesser than the biscuit or coin. So if we compare a 10-gram gold biscuit to gold jewellery, then the buyer would gain if he chooses the gold biscuit.

Let’s check the comparison:
The buyer is under an obligation to the seller to purchase the gold at the prevailing market rate. If at the time of booking jewellery, the gold rate is Rs 2,800/gram and after the completion of instalments, the rate increased to Rs 3,000/grams, then the buyer has to pay Rs 2,000 extra for every 10 grams due to change in price of gold.

If the main purpose of a buyer is to invest, then buying jewellery is not a wise choice. Jewellery is not made of 24 carat gold, and it also carries some making charges, so the return value of jewellery would be much less when compared to the gold coin, biscuit or bars.

Other attractive options to buy gold in installments

The buyers have many other options to buy gold at a cheaper cost and at a better quality. Some of the options include:

If the buyer wants to buy gold after 12 months under the instalment pattern, then it would be a better option if he buys Gold ETF in the stock market every month and averages out the inconsistency. He can also buy it in e-gold format (National spot exchange) where he can buy as little as 1 gram gold. After 12 months, he can sell the gold in electronic form and buy the gold jewellery from the proceedings, or if he wants to carry it longer then he can keep it in the demat A/c.

If the buyer wants to invest in a coin or bar, then he also has the option to put the money every month in a recurring deposit account for 12 months and earn interest on the money and buy gold with the maturity proceedings.

The basic flaw in the gold jewellery scheme is that jewellers not only earn interest on the buyer’s instalment but also sell the jewellery after earning a handsome margin.

For 20 grams gold jewellery, he earns Rs 600 making charge and sells 22 carat gold at rate of 24 carat gold. So he earns approximately 8 per cent extra by selling gold of 22 carat purity.

For jewellers, this scheme is a win-win situation as he gets the chance to sell his product, and at the same time he earns interest on the customer’s instalment whereas buyers, who cannot distinguish whether they are buying gold as jewellery or as an investment, are always set to lose out in this type of deal.

The writer is CEO of BankBazaar.com