Watch out for this gold scheme of jewelers!

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Under a jeweler’s gold scheme, you have to deposit a fixed amount or pay a monthly installment to the jewelry shop for a predetermined period, which is about 11-12 months. Basically, the jeweler incentivizes you to invest in such schemes by offering you a discount of 50,55,65 or 70% discount on one installment. Essentially, this plan is a type of future purchasing plan.

Let’s understand this through an example. Assume you are investing Rs 5,000 every month in such a gold scheme. The jeweler is offering you 50% on 1 installment. By the 10th month, you will have Rs 50,000. Now the 11th and 12th months are generally when the scheme matures. So, if you want to buy something in the 11th month, you will get a 50% discount on your regular installment of Rs 5,000. In other words, you will get an incentive of Rs 2,500 on your principal amount of Rs 50,000. All in all, you will be able to buy jewelry by paying Rs 52,500.

Most prominent jewelry companies run this scheme, be it Tanishq, Malabar Gold or Kalyan Jewelers. Some popular gold schemes include Tanishq Golden Harvest Scheme, Kalyan Jewelers Gold Schemes, Malabar Gold And Diamonds Smart Buy Scheme.

Despite sounding lucrative, these schemes are far from okay, because they ensure that only jewelers benefit, while investors like you are left empty-handed. Thanks to this scheme, the jeweler gets easy access to cheap capital, without having to undertake any price risk associated with gold in the market. All the jeweler has to do is take your money, while giving you nothing immediately in return. So, your money is stuck with them. On the other hand, if the jeweler takes the same amount as a loan from the bank, they will have to pay interest on it.

After the scheme matures, they don’t have to give you any cash, but a piece of jewelry, on which they can impose high making charges, which can be anywhere between 15-30%. The only benefit investors enjoy is that you are able to buy some jewelry by saving small amounts regularly, and that some portion of your income is invested in gold.

But the drawbacks far outweigh these benefits. In most schemes, if the investor discontinues paying towards the scheme in 6 months or less, they won’t be able to avail any incentive or discounts. Moreover, you are tied to one jeweler. While it can be risky to invest a big sum with a smaller jeweler, bigger jewelry outlets might end up heavy on your pockets, due to their high making charges.

Apart from the high making charges that jewelers impose, you will also have to pay 3% GST on the total payable amount. On the contrary, if you invest in Sovereign Gold Bonds or SGBs, you will not have to pay any GST. So, if you want to invest in gold, you have far better options where there is less risk and better returns

All that glitters is certainly not a gold scheme. That’s why, before investing in such schemes, remember these points. If you want to invest in gold, you can take the SGB or gold ETF route. For better returns, you can invest for RD or SIPs. So, stay alert and invest only in correct schemes.