Chances are that you’ve received missives from your local jewellery store expounding the virtues of their new gold savings scheme. Post the provisions of the new Companies Act, jewellers have cleverly worked around the regulations, escaped the provisions therein and sallied forth with new gold savings schemes.

So should you go for them? No. The savings schemes run by jewellers are still a risky proposition. Here is why.

What’s changed Jewellers sniffed a loophole in the provisions and reduced the deposit maturity to less than 12 months from the 12/24/36 months it used to be. With this, the money collected under these schemes is not deemed to be a ‘deposit’ under the Act. How? Well, as per the Companies (Acceptance of Deposits) Rules, 2014, an advance in lieu of supply of goods will not be a deposit if it is appropriated and the goods are supplied within a year.

“As gold schemes of jewellers now have a maturity period of less than 365 days, they are not affected by the provisions of the Companies Act, 2013 and the Rules made under Companies Law”, says Sharanya Ranga, Partner, Advaya Legal.

Jewellers now apply the term ‘discount’ to their contribution to the scheme, removing the term ‘bonus’. The Companies Rules, 2014 defines a deposit as “any amounts received by a company, whether in the form of instalments or otherwise, from a person with a promise or offer to give returns, in cash or in kind and any additional amount contributed by the company.”

There is thus no mandate for jewellers who run saving schemes to get their repayment capacity rated, maintain a reserve for repayment of the deposit whenever it matures, or abide by any other rule laid down by the new Companies Act to protect the interest of deposit holders.

Lower returns The new Companies Act has capped the interest companies can offer on deposits at the rate offered by non-banking finance companies (currently 12.5 per cent).

Though this rule doesn’t apply to jewellers as they have kept themselves out of the ambit of the Companies Act, some have still chosen to reduce the returns they offer. Tanishq (Titan’s jewellery arm), for example, has re-launched its ‘Gold Harvest’ scheme. Returns on this scheme are down from the earlier 17.5-19 per cent return per annum to about 12 per cent now.

This is because the company cut down its contribution to the scheme. Previously, it used to contribute one full month’s instalment. Now, it is only 55/65/75 per cent depending on the maturity (it is only 20 per cent for a six month scheme).

For instance, if you save ₹2,000 a month for 10 months, you will get ₹21,300 at the end of 12 months (worked out as 65 per cent of ₹2,000). This translates to an annual return of 12.25 per cent.

Further, while earlier you could save for 12 or 18 months under the scheme, now you can do it only for six months or 10+1, or 10+2, or 10+3 months.

In other words, you contribute for 10 months and buy jewellery for the total sum after one, two, or three months.

GRT, a large south-based chain, has also re-launched its saving scheme, but without its ‘bonus’ carrot. Instead, you can contribute a fixed sum continuously for 11 months and in the 12th month, buy jewellery for the accumulated sum.

Earlier, the jeweller offered one full month’s instalment as a bonus at the end of the scheme.

Flaws aplenty Even in the original avatar, jewellers’ savings schemes had several shortcomings, which persist in the new schemes too. One, you didn’t get cash. You had to compulsorily buy jewellery at the end of the term. Two, though the scheme was marketed on the ‘zero’ wastage platform, it was applicable to select designs only. Also, there was a cap on the benefit that could be drawn on wastage.

Third, if you missed even a single instalment, you could lose all benefits. Fourth, your savings can be jeopardised if the jeweller faced financial difficulties; any jeweller who raised money through saving schemes used it to meet operating expenses.

Jewellers’ gold savings schemes are unregulated. They don’t fall under the SEBI-regulated collective investment scheme (CIS) umbrella; they do not carry the attributes of a CIS, says Sharanya Ranga. Nor do they fall under the purview of the RBI as they are not operated by NBFCs or banks.

In case of troubles, you only have the legal recourse route open, says Rajesh Thakkar, Partner, Transaction Advisory Services, BDO India. The Consumer Protection Act, 1986, could come to your rescue, adds Sharanya Ranga. However, these processes can be long-drawn.

Clarification

Titan Company has clarified that its new golden harvest scheme is fully compliant with the requirements of the new Companies Act.

comment COMMENT NOW