Jewellers’
Gold Saving Scheme v/s GOLD ETFs
Which is better?
Background
The festive
season has hit India with Navratri to be followed by Diwali. We Indians are
famous for our passion and fascination for gold. Gold is quoting around Rs 32000
per 10 gram even then many individuals are lining up to buy gold on auspicious occasions
like Dasera and Dhanteras. We never miss those days which are traditionally auspicious
to buy gold. Many people accumulate gold to marry off their children.
Big
jewellery houses such as Tanishq, TBZ, Delhi based PC Jewellers, Chennai based
GRT Jewellers and many more jewellers has launched lucrative gold saving schemes.
These schemes help to save systematically in small amounts like SIP with
jewellers to buy gold at a future date. The instalments are as small as Rs 500
or Rs. 1000 and at the end to term jewellers add one instalment or some add two
instalments. The last instalment added
by jewellers is actually interest on previous payments.
Scheme Provided by Jewellers
These
scheme yield around 10% or 15% depend upon the scheme you choose. This is
higher than the interest provided on Fixed Deposits and Recurring Deposits.
These schemes make sense if you are planning to buy gold in the near
future. Though these schemes yields good
return, a person who wants to purchase certain quantity in future may have to
add some amount at the time of purchasing physical gold, if the gold price rises
steeply during that period (Demonstrated in Table-1). If anyone opts to invest
through gold schemes, he or she will be obliged to purchase jewellery at the prevailing
market price. Big jewellers charge high making charge as well as high premium on their products resulting compromise on quantity of gold or extra cost by customers.
There are
two ways in which you can buy gold in instalments. Your jeweller’s scheme
mention above gives you credit for amount deposited but NOT equivalent
gold every month. In ETFs (Exchange Traded Funds), you buy exact quantity of gold. And that is the big
difference in rising market. In a falling market, the jewellers’ scheme would turn
out to be more beneficial. This is the crucial aspect.
Jewellers’ Saving Scheme v/s Gold
ETFs
Illustration
Here in this table shows that if a
person wants to purchase 12 gm gold after one year, he or she has two options
to invest. In gold scheme provided by jewellery houses or to purchase gold ETFs
every month.
Option-1:
A person decides to invest through Gold Saving Scheme
To purchase 12 gm, a person starts
investment by taking current market price of gold with some safety margin.
Investment for 11 months is by the investor and the last instalment will be
added by the scheme provider. So a person gets return of 9.09% at end of 12
month (absolute). But after 12 months, a
person has to add Rs. 1078 to purchase 12 gm of Gold.
Option-2: A person decides to invest through Gold ETFs
To purchase 12 gm gold through
investment in Gold ETFs, a person starts purchasing one unit of ETF every
month. After 12 moths 12 units collected which can be redeemed to purchase 12 gm
of gold.
If a person
is saving for his or her children’s marriage, which is several years far, then the
gold saving scheme may not help as much effectively. In this case a person should
choose such investment vehicle which has returns linked with gold price.
Systematically
investment in Gold ETFs would be the better option for the person who is
planning to purchase gold after several years. Gold ETFs are available in units
which represent one gram of 24-crt gold of 99.5% purity. These units can be
held in demat account as long as we want. As unit price replicates gold price,
one can redeem units at any point of time to purchase physical gold. Apart from
Gold ETFs one can consider E-Gold buying provided by NSEL.
Gold has
been very volatile in recent past and its is rising very steeply since last 5
years. The table below shows that the steepness of return is increasing as years
pass. The Chart shows the gold price since 1979.
Steepness of Gold Price
Historical Gold Price
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