Are gold fixed deposit schemes legal?

There is no obligation to disclose anything for a gold deposit scheme even though it is the average person, who will be drawn to it and not necessarily out of greed. Are regulators like RBI and SEBI sleeping? Is this scheme legal? Does this not amount to borrowing? Does this not become a “collective investment scheme”?

It is very common for many Indians to regularly give money to the jeweller in instalments and then buy ornaments.  Companies like Tanishq run it like a fixed deposit scheme. None of these let you get your cash back; you have to buy jewellery from them, at their prices. Most families get into these schemes because the woman in the house feels that it is the only way to accumulate gold for the daughter’s wedding. This insecurity or need, is taken advantage of by the gold shops. Every jeweller seems to have his own unique scheme to trap the buyer.

Recently, I saw an advertisement by KFJ (Kerala Fasion Jewellers), a jeweller in Chennai, who promises to give you gold of .916 purity ( approximately 22 carats fine) at committed prices today and for delivery after one, two, three, four or five years. The mathematics behind it is very simple. Let me put it down in a table: 

Pay now

Wait for


5 years


4 years


3 years


2 years


1 year


Get one gram of gold at end of the period by paying the amount now. It is gold of .916 purity.


The advertisement and the forms are vaguely worded. You do not know what you are going to get at the end of the period. In one place there is talk of one and a half gram of gold for the price of one gram. However, in the form there is no mention of anything.

The price of Rs2,499 for 22 carats is almost equal to a price of Rs30,000 for 10 grams of pure gold (.999). This is almost 10% percent higher than the present price of gold. So you are getting no bargain. On the other hand, your payment for each year of wait, increases by 5%-10% and is not uniform.

The funny thing about the scheme is that it says ‘In association with SBI Life Insurance”. I wonder what SBI Life is doing in this? No details mentioned in the advertisement or the website. I have the following concerns:

  1. Neither the advertisement nor the so-called application form mentions the name of the entity in legal terms. I do not know whether I am dealing with a proprietory, partnership or some other fictitious or real entity. Who do I do and file a claim against? No names, no addresses. A perfect set-up for a scam;
  2. What is SBI Life doing with it?  Carrying the name on the form gives an impression that SBI Life is guaranteeing this or is part of this;
  3. What about the taxation on any returns that I may get? This is a quasi money lending or a disguised fixed deposit scheme;
  4. Who guarantees this? Does this company have a balance sheet to back it?
  5. Is this a legal scheme, approved by SEBI or RBI?
  6. Does the RBI permit this company or entity to accept any amount in cash?
  7. There is no mention of a name to which a cheque can be issued. Gives me a creepy feeling that they may accept only cash;
  8. Is the name being hidden so that when a default happens, no one will know whom to pursue?
  9. What will this jeweller do with the money that he raises from this scheme?
  10. Is there a limit up to which he will accept or can accept?
  11. Who regulates this entity? SEBI? RBI? Ministry of company affairs? State government? No one?
  12. Who owns this company or firm? Indians or foreigners?
  13. Is it likely that RBI / SBI Life / SEBI will not see this advertisement unless someone “brings it to their attention?”
  14. In the form, there are enough wordings to let the jeweller get away with anything.

When a company wants to raise funds, it has to disclose quite a few things. Same for finance companies, regulated by the RBI. There is no obligation to disclose anything for a gold deposit scheme even though it is the average person who will be drawn to it and not necessarily out of greed. In the era of scams, this is another one waiting to happen.

So brazen is this, that it has a full page advertisement in the Chennai edition of major newspapers. I am sure that this is not their first advertisement nor is this the first time they are propagating this scheme. Are our regulators sleeping? Is this scheme legal? Does this not amount to borrowing? Does this not become a “collective investment scheme”?

8 years ago
Installment Gold purchase program will be trustworthy only when it is done by Government registered firms with clear terms and conditions. If any thing goes wrong, there should be a responsible entity to recover the loss from if any and to be returned to the investor. The fraudulent entity should be punished severely by the authority. There are hundreds of firms do such business correctly and trustfully. If proper insurance policy is obtained in the name of the investor as a precaution, it will be good.
8 years ago
I have came accross another similar gold scheme with "Khazana & Malabar" also. They, convert monthly deposit into 22 ct. gold and deliver the accumulated 22ct gold at the end of period with reduced 8 to 23% depreciation on making of ornaments. Perhaps, there might not be making charges.

They tempt us that the scheme is shielded against the growing gold prices, as they lock the price on day of deposit into physical gold. Well! it is correct, if the gold price rises. But, not in current situation, when the gold prices are falling. But, they are looting the savings in the form of high depreciation, say 23%.

They did not allow me to take zerox copy of the agreement,if I intend to join. But, they allowed either Cheque or Debit card for payment of monthly deposits.
8 years ago
most of the jewellers in kerala state are running the scheme with a little or no difference.authorities will remain asleep till another scam/chit gate breaks out.can anybody shook the authorities out of sleep?
8 years ago
anantha ramdas
8 years ago
Thanks, Mr Balakrishnan for bringing this issue to public notice!

Every non-working housewife gets a monthly 'pay-packet' to run the household expenses. The poor lady toils and saves, and lands herself into a glorious mess in buying gold (in any form) for the welfare of the family, particularly if she has a girl child at home.

In this particular case, even if they have a balance sheet showing all sorts of promising figures, there is no guarantee that something amiss will not happen.

In a likewise manner, there are banks and lending organizations that invite you to deposit "gold and jewellery" and take loans against them, on payment of interest. Such schemes are perfect set ups for disaster should the price fall.The banks will sell gold coins, bars etc, but will not re-purchase back from you!

This is identical to the housing disaster we had in the US a few years back. When property prices were going up, financiers/loan companies chased everyone to take "cheap"
loans; replace their old cars; take much needed long holidays and spend money as though there was no tomorrow.

When the housing crash took place, yes, there was no tomorrow for those who had heavily borrowed and a a great
many houses were "foreclosed",
leaving the debtor on the road.

I do not know who is responsible for permitting such sales. It is Cavet emptor - buyer beware - and it is us who have to be careful, and like you mentioned, some government department or statutory body that must look into this issue that you have so kindly raised.
R Balakrishnan
Replied to anantha ramdas comment 8 years ago
Alas, our regulators are like the Keystone Cops. They will come for the post mortem ceremonies.
Dayananda Kamath k
Replied to R Balakrishnan comment 8 years ago
it is the trend in india,as long is amount involved is small none of the regulator is bothered and even if a complaint is made they will interpret as it suits to them to avoid action.when it reaches 1000's of crores every regulator finds something to show that they are taking action.yesterdays advice by chidambarm our graet finance minister, making budgets for foreigners benefit,to enforcement directorate about action to be taken is point in this regard.
8 years ago
Can you please explain how did you arrive at the 30,000 figure? I thought it would be some 27000.
R Balakrishnan
Replied to pravsemilo comment 8 years ago
2499 is for .916 purity. So 2499 divided by 916 multiplied by 999 should be nearly 2725 or so. Plus they give you after one year. Factor in around ten percent interest and you are at nearly 3000 per gram. They are not giving the gold today at 2499. If they do, then u are right.
Anil Agashe
8 years ago
Bless all those who will fall for this scheme. May their gold grow! But when they are cheated let them not say we were not warned or that the government should help them recover their money!
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