Gold is a very favorite metal to Indians, there is a tradition also attached it, woman are very fascinated about gold jewelry normally Indians buy gold on every holy occasion. India is a 2nd largest consumer of gold in world.
Few consider buying jewelry as investing in gold, but they are misleading themselves as it is not true because of following main reasons,
The jewelry once bought never sold unless and until it is the only source left,
There is a loss in to it, as at the time of selling the jeweler reduce the weight of the ornament on the account of impurities. so if it is investment then the loss starts immediately as you buy.
One of my client, who is my friend also whom I told not to buy gold more than the specified amount was approaching me in different ways to take yes from me to buy gold. It is mainly because gold had appreciated as never before to current young generation.
One day he came to me with some options investing in gold which are floated by most of the jewelers around which is also very well known as Gold saving schemes or gold bhshi.
What is a gold bhishi or savings plan: In this plan you have to invest some fixed amount (which normally is Rs. 1000/- and in multiple in most of the cases) every month for a specified term like 12,18,24,36 months and at the time of maturity you can buy the gold items from the maturity amount, now most of the jewelers are giving flexibility of buying Silver, Diamond, platinum or any such item if you want. The maturity cannot be cashed.
These schemes are made attractive to the customer by giving discount or additional few final installments depending on the plan you select. As well as some of the jewelers gives discount in making charges of ornaments.
The Benefit To Jeweler :
He gets a fixed advance business because when the scheme matures client is going to buy the items from his shop only, so jeweler is assured for his future business, as well as this allows client to accumulate in small amounts the reach also increases.
The Benefit to You:
The small saving help you to accumulate for buying your desired item. It is like a recurring deposit which you are doing for buying gold jeweler.
Why to enroll:
You can enroll in this scheme if you want to buy a jewelry to your loving ones. If you have some fixed commitment for gold items in coming 1 years or so. Define how much amount gold ornaments you want to buy and accordingly select the plan.
The risk in these type of arrangement is high as compare to Bank deposits and fully depend on trustworthiness of jeweler.
Which plan to select :
First you have to understand that even if it is called as gold saving plan or gold Bhaishi it is not actually you are purchasing gold during payment of installments, it is just like RD where you keep on doing installments and you will get invested amount plus interest at maturity, here jeweler gives additional installment.
There are many plans which are offered to the client and are sufficient to create confusion in the mind which to select.
To select which is a good plan for you let’s calculate yield from this investment.
Have a look at following schemes:
A. You pay for 12 installments + get 1 installment free and can buy the goods in 14th month.
B. You pay for 24 installments + get 3 installments free and can buy the goods in 27th month.
C. You pay for 36 installments + get 7 installments free and can buy the goods in 40th month.
D. You pay for 12 installments + get 1 installment free and can buy the good in 13th month.
E. You pay for 18 installments + get 2 installments free and can buy the good in 19th month.
F. You pay for 24 installments + get 3 installments free and can buy the good in 25th month.
Can you tell me which is better? Confused and most of you will either go for scheme C or F because as you go for more installments the scheme becomes more attractive by giving you more free installments.
To arrive at right calculations I used internal rate of return (IRR) method and surprisingly finds following results.
The returns on yearly effective basis for the schemes are as follows.
A. 13.54 %
This shows that the sooner is better so going for small duration schemes make sense above schemes are offered by local jeweler there is one corporate which is offering You pay for 11 installments + get 1 installment free and can buy the good in 13th month.
The yield in this scheme comes to 15.93% which is better than the above schemes.
Now you have offered a analysis on the schemes available, ball is in your court.