Their View. What draws buyers to gold savings scheme?

Financial investment options are aplenty — from equity shares, debt instruments and mutual funds to several government schemes such as Public Provident Fund and National Savings Certificates.

Many in the country, though, still swear by gold that seems to hold a timeless appeal. Among the many modes of buying or investing in the yellow metal are gold savings schemes that are offered by many jewellers across the country. These are patronised by several customers across income categories.

The primary appeal of gold savings schemes lies in their simple premise of convenience and affordability — pay in instalments for the jewellery you want to buy.

Add to this the sweeteners — say, a bonus amount, waiver of whole or part of the last instalment, waiver or reduction of wastage/making charges on the jewellery, discounts on purchase value, a gift item or some such.

The instalment payment mechanism lets customers save even small amounts (say, ₹500 in the case of some jewellers) and buy coveted high-value jewellery.

The bonus or other benefits add to the purchasing power of the buyers or reduce costs or give extras.

Instalments under these schemes are usually for less than 12 months. This is to stay on the right side of the Companies Act that was tightened in 2014.

Gold savings schemes, typically, allow investors to buy jewellery, based on the gold price at the time of the purchase. Some schemes also allow jewellery purchase based on the weight of gold accumulated over the instalments. The instalment amount, type of scheme and the incentives offered could vary across jewellers.

For instance, under the Golden Harvest scheme offered by Tanishq, customers have to pay instalments for 10 months and can buy jewellery from the 11th month with discounts ranging between 55-75 per cent of one instalment. In the Golden Eleven Flexi Plan by GRT Jewellers, customers have to pay 11 instalments and the jeweller does not charge wastage and value-addition on jewellery purchased; for some special items though, wastage/value addition is charged. Other jewellers may provide other kinds of benefits.

What draws buyers towards these schemes? Are they aware of the risks and rewards, and possible alternatives? BusinessLine spoke to some customers of gold savings schemes to find out.

Drivers

Recommendations from neighbours, relatives and friends seem to be a big driver for investing in these schemes. Forty-five-year-old Uma Dharani (name changed), a home-maker from Chennai has been investing in a gold savings scheme for nearly two decades now.

She invests ₹1,000 per month in this scheme and has no other savings. Uma Dharani says “I have been investing in the gold savings scheme with a reputed jeweller for the past 18 years. All these years, I have never had a problem in getting back my investment in the form of jewellery”.

She adds that as she was not sure where to save her money, she went for this scheme that was suggested by her neighbours and appealed well to her.

Deepika Sharma, 25, working with an MNC company in Mumbai, is another subscriber who went by the advice of her close relatives.

She says “Immediately after joining work, I started saving in a gold savings scheme. I save ₹2,000 every month.” So far, Deepika doesn’t have any other investments, but is planning to park money in mutual funds. Comfort with well-known jewellery brands and trusted corporate names also encourages some subscribers to invest in gold savings schemes.

Thirty-year-old Rekha, a Maths teacher with a private school in Chennai knows the risks involved, but invests ₹2,000 every month in Tanishq Golden Harvest on the prodding of her mother. She says, “I have been investing in this scheme for the past few years based on the trust I have on the company. Being a Tata product, I feel comfortable investing my money”.

Nirosha Sridhar, a 27-year-old Chennai-based self-employed person, also puts money in a gold savings scheme based on her trust in the jeweller.

She understands the risks and rewards and invests ₹5,000 monthly in a scheme. Nirosha says, “I trust the company where I have invested in. It has been in this business for so many years”. Expectedly, the sweeteners offered by the jewellers are also a big draw.

Rekha says, “The scheme I am investing in pays 55-75 per cent of one instalment as discount while purchasing the jewellery. Also, the making charges and wastage are much lesser when the jewellery is purchased through this scheme.”

For Uma, paying a large amount upfront to buy jewellery is quite difficult. She says, “The instalment system comes handy. Also, the scheme provides benefits such as 12th month instalment as bonus and lower wastage and making charges on the jewellery purchased.”

Deepika finds the savings on making charges and wastage quite attractive. She says, “Normally, while buying gold, a lot of money is collected as making charges and wastage. This expense is very low while buying through this scheme.”

Risks and regulation

True, such schemes boast appeal and add-ons. But they come with considerable risks attached.

Recourse can be difficult and long-winded for buyers/investors in case of a default by the jeweller.

This risk was driven home recently when Chennai-based jewellery retailer Nathella Sampath Jewellery went belly up, leaving in the lurch its gold savings scheme customers who have been running from pillar to post to recover their money.

While Uma Dharani is unaware about the risks associated with the scheme, Rekha and Nirosha know the risks, but continue to invest in the scheme. Deepika, on the other hand, is having second thoughts now.

She says, “Until a few months back, I was not aware of the risks associated with the schemes. Now that I am aware, I will discontinue after completing the ongoing scheme”.

Investors in gold saving schemes are not protected either by the Reserve Bank of India or the SEBI. There are provisions in the Companies Act to protect people from losing money in deposits and schemes. But this is only for entities registered as companies.

Besides, even if the entity raising deposit is a registered company, it can be put under the lens only if it raises money for a tenure of over a year.

This is a loophole in the Companies Act which many jewellers are using to their advantage.

Payments are considered as advances, not deposits, if the supply of goods or services takes place within a year.

So most jewellers have made use of the loophole and created 11-month saving schemes that mature by the end of the 12th month when the customer can purchase gold. If the amount is unclaimed, it is moved under the head sundry creditors.

Effectively, these companies circumvent the Companies Act provisions. Since the money collected from the public is considered as advance against sales, it is not regulated by the RBI either.

As the scheme does not come under the collective investment scheme, it is not regulated by SEBI.

In case of default like in the case of Nathella Sampath Jewellery, the only recourse options available to the customers are going to the consumer court with proof of the money deposited with the jeweller.

Other options

If investing in gold in small instalments is the objective, there are other safer options available. The best by far are the sovereign gold bonds (SGBs) that are issued at regular intervals.

These bonds are as safe as they are being issued by the Government, enable investments in small amounts too and pay nominal interest of 2.5-2.75 per cent annually on the amount invested.

On maturity, you get the amount for the gold quantity you have purchased based on prevailing prices, which can be used for jewellery or other purposes.

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