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5 things to know about Gold-on-instalment Schemes

Since gold has become quite expensive, many jewellers are luring people to buy gold in instalments...along with a free incentive. But before you are tempted to opt for some such scheme, it would be prudent to be aware of the key features.

1. Under one such scheme, you pay a fixed amount to the jeweller every month for say 11 months. As an incentive, the jeweller pays the 12th instalment on your behalf. But note that you get no interest on this deposit. So check whether the 12th instalment to be paid by the jeweller will be more than the interest that you may otherwise earn by depositing this money in a Recurring Deposit.

2. Then, after 1 year, you can buy jewellery with this money available with the jeweller. But this will be at the gold prices then prevailing. So you run the risk if the gold prices have increased in the interim. It may be better to buy gold every month instead of just keeping a deposit with the jeweller or making an RD.

3. There is another scheme that gives you gold every month at the price then prevailing. So you reduce the risk of high gold price at year-end. This is better than keeping deposit/RD. But this scheme too has a few problems (discussed in the next two points).

4. Whatever the scheme, you can only buy jewellery (bars/biscuits not permitted). This, as you are aware, comes with heavy making charges. So whatever benefit you may be getting via last 1 or 2 instalments being contributed by the jeweller, could be indirectly recovered by way of making charges.

5. Also you are forced to buy from the particular jeweller only. Instead suppose you had bought gold mutual fund every month, you could have converted it into cash at year-end and used the money to buy from whosoever was giving you jewellery of your choice. Also, since there would be no compulsion, you could even negotiate on the making charges; or even buy gold biscuits/bars if you so desired. In short you would have lot more flexibility. Yes, you won't get any incentive. But this, as we have seen, may only be on paper.

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