Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Should you opt for gold savings schemes floated by jewellers? - Outside View by PersonalFN
Should you opt for gold savings schemes floated by jewellers?

India is the second largest consumer of gold and ranks only next to China. Traditionally, gold jewellery has been popular with Indians and almost no Indian wedding is complete without gold jewellery. However, in the recent years, investment demand for gold has been rising. New modes of buying gold have emerged. Today, one can buy gold without holding it in physical form. With emergence of gold Exchange Traded Funds (ETFs) and gold fund of fund schemes, people are looking beyond buying gold in physical form. To generate more buying interest, many banks and Non-Banking Financial Companies (NBFCs) launched gold deposit schemes. These schemes are regulated by RBI. But it has been observed that there are hundreds of schemes in circulation which are launched by non-bank or non-NBFC promoters. Securities and Exchange Board of India (SEBI) is all set to clamp down on such schemes.

Why SEBI is planning to take action?

Any money pooling scheme that is launched to earn profits and has corpus of Rs100 crore and above is classified as a Collective Investment Scheme (CIS) qualifying for SEBI regulation. As reported by a reputed newspaper having daily circulation, there are atleast 100 such schemes which have pooled amounts in excess of Rs 100 crore. Moreover, there are many other schemes with lesser corpus, launched by non-bank promoters such as jewellers and other entities involved in gold bullion business. Usually they involve sale and purchase of gold but they are not regulated, which leaves a scope for fraud. Also, those gold-linked money pooling schemes involve issuance of bonds are security market transactions and thus need to be regulated.

There have been several Public Interest Litigations (PILs) filed against jewellers offering gold linked schemes wherein a buyer pays monthly installments and gets some returns; usually in the form of discounts. More often, the jeweller would pay 1 or 2 installments from his pocket. The PILs challenge the legality of these schemes. The questions have been raised pertaining to accountability of jewellers towards buyers in case of liquidation.

Curbing fraudulent money circulation schemes has been identified as one of the priorities of SEBI. To attain this objective, the regulator is said to be fortifying co-ordination and co-operation with other regulators such as RBI. Timely action by a regulator is imperative to preservation of investors' interest.

PersonalFN is of the view that, investing in gold linked money pooling schemes is risky. If you are issued bonds against your investments; they suffer from risk of default. Moreover, if you are required to buy gold once you have paid all your installments, it is unlikely that you may buy gold bars or gold coins. Buying jewellery involves payment of making changes which may be as high as 25%-30% and erase gains you might have made by availing discounts.

Therefore, PersonalFN is of the view that investors should be wary of such schemes. Yes, gold is an important asset to own and you should hold 10%-15% of your investment portfolio in gold. PersonalFN believes that, while investing in gold, you should stay with investment products that are strictly regulated and floated by a trusted promoter. Gold ETFs and gold fund of fund schemes should be preferred. If you are buying gold in physical form, you shouldn't forget to ensure purity of gold and check BIS hallmark. Getting lured by gold linked money pooling schemes is dangerous. Even though there are likely chances that SEBI may take tough action against fraudulent gold linked money pooling schemes; the risk remains.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.


Equitymaster requests your view! Post a comment on "Should you opt for gold savings schemes floated by jewellers?". Click here!


More Views on News

The Right Financial Advisor Is Around the Corner (Outside View)

Mar 10, 2016

An opportunity to find an impeccably trustworthy and competent financial guardian is in the offing.

Why financial planning should be dull and boring (Mutual Fund Corner)

Feb 29, 2016

Most financial planners come out as whiz kids who throw around financial jargon. But financial planning can be actually easy, provided one follows a disciplined approach.

What Are E-Wallets And How To Use Them (Mutual Fund Corner)

Feb 12, 2016

PersonalFN highlights the benefits of parking a portion of your expenses in e-wallets and using them efficiently.

Is Consumption Boom Over In India? (Mutual Fund Corner)

Feb 2, 2016

Mutual funds take a bearish call on the FMCG sector. The sector has started playing out due to a combination of slower growth and expensive valuations.

How to Find a Saint Amongst Sinners? (Mutual Fund Corner)

Feb 1, 2016

Ethical practices help build long lasting relationships, and healthy long-term business relationships are often mutually rewarding. But PersonalFN is of the view that the financial services industry in India seems to have forgotten this.

More Views on News

Most Popular

A Pharma IPO in a Market That Loves IPOs but Hates Pharma(The 5 Minute Wrapup)

Jun 15, 2017

Tomorrow comes the IPO of Eris Lifesciences. How will a pharma IPO do in this market?

Bitcoin at $10,000?(Vivek Kaul's Diary)

Jun 14, 2017

Whether you're Venezuela or China or in India or the US...and you want to protect your wealth, you need real money. All the government has on offer is funny money.

Get Ready for Commodity Options!(Daily Profit Hunter)

Jun 16, 2017

Commodity options trading is one step closer to reality. Learn how to take advantage of this tremendous opportunity.

Walter Schloss' Investing Record(Chart Of The Day)

Jun 17, 2017

In a market full of one-hit-wonders, this investor obviously had a formula that worked. And through the think-and-thin of the market.

11 Hidden Costs Associated With Your Home Loan(Outside View)

Jun 16, 2017

Various costs associated with a home loan.