Understanding Gold on EMI
Buying gold on Equated Monthly Instalments (EMI) allows you to purchase jewellery, coins, or bars and pay for them over a set period through fixed monthly payments. This method has become popular as it makes high-value purchases more manageable without
a large, one-time financial outlay. Jewellers typically partner with banks or non-banking financial companies (NBFCs) to offer these plans directly at the point of sale, often through a credit card, debit card, or a dedicated financing partner. The tenure for these plans can range from three to 24 months, offering flexibility to fit different budgets.
The Hidden Costs: What to Look For
While convenient, the advertised EMI amount is rarely the final cost. Several additional charges can significantly increase the total price of your purchase. Many plans, even those advertised as 'no-cost EMI', may include a processing fee. Additionally, interest rates can apply, especially for longer tenures, increasing the overall amount you pay. It's also important to remember that Goods and Services Tax (GST) is always applicable—3% on the value of the gold and 5% on the making charges, regardless of the payment method. These extra costs, including making charges for jewellery, are not recoverable upon resale, meaning you pay a premium that you don't get back.
Jeweller Schemes vs. Bank EMIs
There are broadly two types of instalment plans. The first is a straightforward EMI plan facilitated by a bank or NBFC, where you take the product home immediately and pay off the loan over time. The second is a gold savings scheme offered directly by jewellers. In these schemes, you deposit a fixed amount every month for a specific tenure, like 10 or 11 months. At the end of the term, the jeweller might add a bonus, such as one month's instalment, and you can use the total accumulated amount to buy jewellery from their store. While these schemes can seem attractive, they are not regulated like bank deposits, and your money could be at risk if the jeweller faces financial trouble. Moreover, you are locked into buying from that specific jeweller at the gold rate prevailing at the time of redemption.
Digital Gold on EMI
The option to buy gold on EMI also extends to the digital space. Digital gold allows you to purchase 24-karat gold online in small, fractional amounts, which is then stored in secure vaults on your behalf. Many platforms offering digital gold have partnered with financing services to provide EMI options. This can be a good way to invest in pure gold without worrying about storage or high making charges that come with physical jewellery. However, digital gold platforms typically have a buy-sell spread, meaning the price to sell is slightly lower than the price to buy, and a 3% GST is applied at the time of purchase.
Is It a Smart Financial Move?
Buying gold on EMI is best suited for planned, need-based purchases, such as for a wedding or a significant festival, where you need the item immediately but want to spread the cost. It helps in acquiring an asset without draining your savings all at once. However, it is generally not recommended for purely investment purposes or impulse buys. The interest, processing fees, and non-recoverable making charges can erode any potential gains from an increase in the gold price. For investment, alternatives like Sovereign Gold Bonds (SGBs) or Gold ETFs are often more cost-effective as they do not involve making charges and offer better returns and tax efficiency. Additionally, missed EMI payments will negatively impact your credit score.
Questions to Ask Before You Sign
Before committing to a gold EMI plan, it is vital to get complete clarity on the terms. Always ask for a detailed breakdown of the total cost, including the interest rate, processing fees, documentation charges, and GST. Inquire about any penalties for pre-payment or late fees. For jewellery, confirm the making charges, as these can vary widely and add significantly to the final price. Finally, compare the total repayment amount under the EMI plan with the cost of an outright purchase to understand the premium you are paying for the convenience of instalments.
