Wednesday, April 24, 2013

Are Gold Investing Schemes profitable to customers

We Indians are very much attached to the glitters of the yellow metal GOLD. From the birth of a child to the death of an elder , gold is entangled in our cultural as well as social life. When a child is born , things of gold are given to him for the prosperous future it might create for him . On his death we give away his gold jewellery with a view that he might use it in his afterlife. Marriage without gold , cannot be thought of in India .No matter how rich or how much poor you are , you need to have gold.

Gold is so  precious to us that all our  Gods and Goddess are laden with gold . Tirupati balaji one of the many other which has huge amount of gold reserves with them,  donated by the devotes . In fact TTD Tirumala Tirupati Devasthanams is the richest temple of the world with annual year of about 700 crores INR.

With such enthusiasm of gold , it natural for average Indian to horde gold. As a result . there are various schemes for the investors which wish to buy gold or invest in it.

In this article i will be talking about the the gold jewellery companies offering schemes like out of 12 installments pay for just 11 installments and rest one installment would be paid by the company. You'll own the gold jewellery after the completion of the tenure.

It kind looks interesting and profitable . but the question is to whom. Is it the customer or the marketer .In these particular schemes its more profitable to the dealer than the investors. And as a result you will find huge amount of such schemes springing up everywhere. 

Lets see closely what's happening in these deals.

Suppose you think of investing 2000 INR per month for 11 months so the total amount invested by you will be
 2000*11 = 22000  , 
to this amount the dealer adds another 2000 . Hence the total amount becomes 24000. 

You would see a profit of  
(2000/22000)*100= 9.09 %  
on your investment.which is clearly more than any prevailing RD ( recurring deposit ) Schemes but lesser than FD ( fixed deposit) .

Now comes the tricky point , with this money you can only buy jewelery and that too on the prevailing market price.that means if the price is up , you will have to pay the extra charge .

Firstly, Jewelry which is made up of 22k gold and also include making charges which varies from design to design . So if the main purpose is to invest then such schemes are not beneficial to you. It is much better to buy gold coins or bars instead of jewelry.

Secondly . the dealer also earns interest from your installments as he keeps in bank, which you could have earned .More over at the maturity you would have the option of using that money according to your new needs rather than being bounded into buying only jewelry.

Thirdly , the merchant is sure that you will have to buy from his shop as you cannot get it transferred  or get money in exchange.

Fourthly , you cannot have different time periods .i.e its just one year , you cannot extend it for another year nor can you re invest it. You have to take the jewellery after one year.

So not only the merchant is selling a 22k jewelry with approx 600 INR making charge but also earning interest from your installments.

Much better option for you would be to invest in ETF where you can invest monthly and en cash it any time and that too at market rate . Or e-gold is also a good alternative where you can buy gold on paper and have it in physical form as well. this is just my calculations and view , you are free  have a different view.

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