Many jewellers offer gold deposit schemes wherein you give your gold to get higher quantity at the end of one year or get monthly payment as well as return of your gold at end of the term. Should you go for it? Find out which is the only regulated scheme

A Moneylife reader asked us about gold deposit scheme (GDS) by a local jeweller—“In Pune, we have a local jewellery brand called ‘Kothari Jewellers’ who has floated a gold deposit monthly income plan which it claims is approved by the RBI (Reserve Bank of India). Under the scheme, we have to deposit 24k gold bars or 23k vedni. For every tola (10grams), the jeweller will give a fixed amount every month depending on the purity. When I last enquired, I think it was Rs150. At the end of the tenure (maximum is one year), they will give your gold's equivalent weight bar. If you want to continue with the scheme, you can renew the contract for any number of months. They give post-dated cheques of the pre-determined amount after the finalization of the contract.”

While the above scheme gives 5.75% rate of return for using your gold, these jeweller schemes are not approved by any regulator (RBI, SEBI, etc) even if some jewellers may like to give such a false impression. The website www.kotharijewelry.com gives details of its GDS, but it has no mention about it being approved by the RBI or any other regulatory body. The only approved gold deposit scheme is the one from State Bank of India, but it gives very low returns and hence it is not popular with consumers.

Monthly payment against the gold deposited by you and return of equivalent gold at end of the term is one type of GDS; another GDS variant will get extra gold back – more than your deposit if you leave it with them for fixed duration, with no monthly payment. Also, if gold value increases over the period, your gold is more valuable at the end of the term.

GDS is a way to put your idle gold to work and also not have to worry about its safe keeping. But, do these two benefits really work? If you give BIS hallmarked coin or bullion and in return get gold bar without any certification, you are not guaranteed of its purity. What if the small jeweller’s shop is shut down? Your gold is more unsafe than what you could have achieved by putting it in bank locker.

SBI GDS

Why go for it?

• • The interest from this deposit is tax-free. Also, there is no wealth tax for the duration of deposit which is beneficial for high net worth individuals (HNI).
• • You don’t have to worry about safe keeping it at your home or locker. The gold will become part of Indian mint for the duration of deposit.
• • No worry of default as SBI deposit in an Indian mint can be trusted.

Why not go for it?

• • The minimum quantity is 500 grams and may be out of reach of the common man. The main depositors are temple trusts which have good gold holdings.    
• • The interest rate for a three-year deposit is 0.75%, for four and five years it is 1%. It’s not great, but it is calculated in gold terms.
• • You will not get your jewellery back in the same form. This is because gold is melted and reused. There will be some difference in weight calculation in the process. The gold is returned back in bar/bullion or equivalent cash. If you deposit in bar or bullion, the scheme is more beneficial. There could still be a small loss due to weight calculation as per Indian Mint. SBI melts the deposited gold to check the purity and then converts it into bars. Depending on the results, SBI sends a gold deposit certificate within 90 days. The bank bears all expenses associated with this process.
• • The lock-in period of the deposit is one year. Any withdrawal after this period attracts a penalty. The penal cut is 0.5% if withdrawn within three years and 0.25% beyond that.

Jeweller GDS

Why go for it?

• • High interest of 7.5% offered by certain jewellers. E.g. If you give 100 grams of gold, you can get back 107.5 grams of gold after one year.
• • Small quantities of gold accepted.
• • You don’t have to worry about safe keeping it at your home or locker.   

Why not go for it?

• • The scheme is unregulated. If jeweller shuts shop, you cannot turn to anyone for help.    
• • You will not get your jewellery back in the same form. This is because gold is melted and reused. There will be some difference in weight calculation in the process. The gold is returned back in bar or bullion. If you deposit in coin or bullion, the scheme is more beneficial as you can expect to get full weight credited.

Gold savings scheme is the opposite of GDS. Jewellers offer schemes like Tanishq (Titan Industries) Golden Harvest Jewellery savings scheme wherein you pay in instalments for fixed duration (11 months) and the jeweller will pay the last instalment. With this amount you can buy gold from any Tanishq showroom in India at the end of the year.

Read “Gold savings scheme – What you need to know” tomorrow.