FINANCE TIP OF THE DAY
Can you afford your loan?!
Know the quantity of loan you can afford. The banks may sanction loan based on your income but you should look at your monthly expenditure and see if you can afford the maximum that banks offer. As a thumb rule, remember not to let your credit exceed 40% of your income!
Do gold jewellery schemes really benefit buyers?
Gold is one of the most important parts of an Indian’s life while it comes to glorifying any type of festival or occasion. It is a matter of concern for lots of Indian families now that gold price has surged continuously to such a point where it becomes difficult to buy gold. Perceiving the difficulty of Indians, various companies have come up with gold jewelry schemes to lure the jewelry buyers. The gold jewelry companies offer 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 jewelry after the completion of the tenure.
Mrs. Sunita from Delhi wanted to buy 20 grams gold for investment, but she had less money to spend. The jeweler offered a scheme under which she could buy the gold jewelry after one year at a prevailing market rate after paying 12 monthly installments. She also got the offer that the 12th installment would be paid by the jeweler himself after she completes the 11 installment on time. It means for Rs 60000 jewelry, she had to pay Rs 55000 in 11 months, and Rs 5000 will be paid by the jeweler. She thought it was a good option as anyways, she wanted to buy the gold for investment; here she would get the jewelry which would be even better as she can put it on for parties.
Benefits of a Gold Jewelry Scheme
The only benefit that a buyer gets in this type of scheme is buying in installments and keeping money intact for this objective. From a buyer’s point of view, this type of scheme has more to lose than to gain.
Why not to buy gold under the jewelry scheme?
Following are the limitations of buying gold through this scheme:
|Details||Gold Jewelry||Gold Biscuit|
|Quantity||10 Grams||10 Grams|
|Purity||22 K||24 K|
|Making Charges||Up to Rs 30/Gram||Nil|
|Resale Value||Lower due to impurity||Full Return Value|
- The installment paid, can be used only to buy the jewelry, and it cannot be redeemed against gold biscuit or coins. The jewelry also carries the making charges, and its purity is lesser than the biscuit or coin. So if we compare 10 grams gold biscuit to gold jewelry, then 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 jewelry, the gold rate is Rs 2800/gram but after the completion of installments, the rate increased to Rs 3000/grams, then buyer has to pay Rs 2000 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. The jewelry 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 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 installment 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 low 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 jewelry scheme is that jewelers not only earn interest on the buyer’s installment but also sell the jewelry after earning a handsome margin. For 20 grams gold jewelry, he earns Rs 600 making charge and sells 22 carat gold at rate of 24 carat gold. So he earns approx 8% extra by selling gold of 22 carat purity.
For jewelers, 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 installment 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.