Are gold saving schemes worth it?

Tue, 23 Oct Pre-Open

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With festive season just around the corner demand for gold is likely to pick up in the next couple of months. However, with prices of gold increasing every day, at times it gets difficult for individuals to cough up such a large sum of cash at one go. Taking this into consideration many jewellers offer gold saving schemes. Let us first understand what these schemes are and whether it is worth opting for them.

There are basically two types of gold saving schemes that are operational in the market, right now. In the first one, you have to deposit a fixed amount every month for a limited period of time. Say for example, you opt to deposit Rs 500 every month for the next 12 months. Then at the end of 12th month the jeweller will pay one installment on your behalf. Thus, effectively you have accumulated Rs 6500 because of an additional installment from the jeweller. You can then buy gold of that amount from him.

In the second scheme, you can book small quantity of gold every month for a limited period of time. Say for example you plan to buy 10 gms of gold every month for the next 12 months. So, basically at the end of every month you book 10 gms at the price prevailing at the end of each month. And after 12 months you can redeem your gold from the jeweller.

While such schemes appear lucrative, individuals should take these points into consideration before opting for them. While the bonus installment from the jeweller might appear lucrative at the first instance, it should be noted that you also pay making charges once you buy jewellery from him. If the charges are too high, compared to others, the benefit of the bonus installment is wiped off.

Secondly, in scheme one you have no control over the price at which you are buying gold. That's because you pay a fixed installment every month and you get gold at the end of your pre-defined tenure which in this case is 12 months. Now, say that after 12 months the price of gold increases. In that case, you stand to lose out as you will be able to buy less amount of gold at the prevailing higher price. However, there are some schemes that provide you price protection as well.

Lastly, it may be noted that when you go for such schemes you have virtually surrendered yourself to the seller. At the end of your tenure, you will have to buy the gold from him. Thus, you cannot negotiate on the making charges. In effect, you lose bargaining power.

So, basically the question is, should one go for such schemes? Well, the biggest benefit of such schemes is that they help you accumulate gold in installments over a period of time. This does not create a hole in your pocket. But one should also note the fine print before opting for it. Fluctuating gold prices and high making charges can effectively wipe out a seemingly lucrative deal.