Understanding Gold Instalment Schemes
Gold instalment schemes, often marketed as gold savings plans, allow you to pay a fixed amount every month for a specific tenure, typically ranging from six to 12 months. At the end of the term, you can use the accumulated amount to purchase jewellery
from that brand. These schemes primarily come in two forms. The first allows you to pay a fixed monthly amount and purchase gold at the prevailing rate upon maturity. The second type involves booking gold by weight with each instalment, locking in the price at the time of payment. Most popular schemes from major jewellers like Tanishq, Kalyan, and GRT require you to buy jewellery and do not offer cash refunds.
Look Beyond the Headline Interest Rate
Many jeweller-led schemes don't charge explicit interest like a traditional loan. Instead, they offer a 'bonus' at the end of the tenure. For example, a jeweller might add one month's instalment to your total accumulated amount or offer a discount equivalent to a percentage of your first instalment. Tanishq's Golden Harvest scheme, for instance, offers a discount of up to 75% of one month's instalment after a 10-month period. While this might seem like a great return, it's crucial to calculate its effective value against the total cost. Don't be swayed by a 'zero-cost EMI' promise, as the cost is often embedded elsewhere.
Factor in Making Charges and GST
Making charges, or the cost of craftsmanship, can significantly inflate the final price of jewellery. These charges are not standard and can range from a small percentage to over 25% of the gold's value, especially for intricate designs. Some schemes offer discounts or waivers on making charges. Malabar and Bhima, for example, have offered plans with waivers on making charges up to a certain percentage. This can be more beneficial than a cash-value bonus, especially if you plan to buy jewellery with high making charges. Additionally, remember that GST applies. You will be charged 3% GST on the value of the gold and 5% GST on the making charges.
Assess the Impact of Gold Price Fluctuations
The price of gold is volatile. When you enrol in a scheme, you need to understand how price changes will affect your purchase. Most schemes require you to buy gold at the rate prevailing on the day of purchase, not when you started the plan. This means if gold prices rise significantly during your tenure, your accumulated amount will buy you less gold than you might have anticipated. Some schemes offer gold price protection by allowing you to lock in the gold rate or accumulate gold by weight with each instalment, which can be a valuable feature in a rising market. However, be aware of hidden clauses that allow jewellers to make 'market adjustments'.
Review Flexibility, Foreclosure, and Jeweller Credibility
Life is unpredictable. Before committing, check the plan's flexibility. What are the penalties for missing an instalment or for premature withdrawal? Some schemes are rigid, while others may allow you to pause payments. Also, consider that you are locked into buying from that specific jeweller. Therefore, it's vital to choose a reputable and trusted brand with a wide selection of jewellery that suits your taste. Opting for a large, certified jeweller ensures the purity of gold and transparency in the terms and conditions.
