Gold savings scheme from jewellers under SEBI scanner

Raj Pradhan 14 February 2014

Finally, SEBI seems to have woken up to possible thousands of crores invested by consumers in gold savings schemes of jewellers. In these cases, there is no recourse, if the jeweller happens to shut shop. It is time these schemes are regulated to prevent any future scam

Many jewellers offer gold savings scheme wherein you pay specific number of instalments to get bonus added by the jeweller at the end of the period. Gold investment schemes by jewellers have been completely unregulated so far. Even the Income Tax or the Reserve Bank does not bother about these deposit schemes through which investors are earning a fixed income. What will happen if the company or jeweller goes into liquidation or simply vanishes after shutting shop? Securities and Exchange Board of India (SEBI) has come across several such gold savings schemes which have seem sharp increase in recent times. Recent public interest litigation (PIL) questioned the legality of these very gold investment schemes.

Read - Gold investment schemes: do they fit nowhere into regulations?

According to a media report, both SEBI and Reserve Bank of India (RBI) have replied to a Right to Information (RTI) application stating that such schemes are not regulated by them at all. If you risk a small jewellery shop to take your instalments, you risk a huge loss, if you find that the jeweller shut the shop. Moreover, what is the guarantee that the well-known jeweller will be a safe option? Clearly, a Gold Savings Scheme is for those who want to make gold jewellery in the near future and not for investors. It is not for putting a large chunk of your savings.

The SEBI Act, 1992 gives the market regulator power to regulate the working of schemes which are in effect Collective Investment Scheme (CIS) and have the following characteristics:

Pooling of money;
Entrustment of money to someone such that the investors are not the ones who are managing their own money; and
Sharing of returns from a specified investment.

Read - Are gold fixed deposit schemes legal?

The same is taken as a CIS and such schemes have to be necessarily registered with SEBI. It is estimated that there are at least 100 such schemes across the country that could have raised amounts much higher than Rs100 crore -- the threshold limit for any money pooling activity to possibly become a CIS if contributions made by investors are pooled and managed on their behalf to earn profits.

SEBI may have to refer to most of the gold savings scheme money pooling cases to RBI, which is entrusted with the regulation of 'Gold Deposit Schemes' (GDS) offered by banks like SBI and registered Non Banking Finance Companies (NBFC). GDS from jewellers is unregulated. Many jewellers offer GDS 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. The interest rate for SBI GDS 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. Jewellers offer a high rate of interest of 7.5%, but there is absolutely no safety.

A 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 anywhere in India from any Tanishq showroom at the end of the year. The payment of last instalment works out to be over 15% return on your scaled investment in the golden harvest scheme. There is no tax deducted and no regulatory hassles like Know Your Customer (KYC) norms. Jewellers like PC Jewellers, Tribhovandas Bhimji Zaveri, Gitanjali group, Gitanjali Jewels, Tanishq (Titan Industries), GRT jewellers, etc have their own such gold saving schemes with varying benefits.

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Comments

User

p.thangavel

10 years ago

As long as people are crazy on gold,all type of manipulative schemes and marketing are bound to be there.Let the customers be little more cautious from such unethical means adopted by the Jewellery Shops.

Simple Indian

1 decade ago

As it is, gold purchase in India is more as investment for redemption when gold rates appreciate over time. The gold deposit schemes have been around for a long time, particularly ones offered by Pan-India jewelry retailers like Tanishq by Titan Co. Ltd., a Tata firm. These are quasi-NBFC schemes which accept money (often in cash) and yet are not regulated by RBI or Govt of India. Audit of these schemes by various jewelers will show that millions are kept as deposits with such jewelers who may well use the money as working capital. Moreover, these jewelers may well change conditions unilaterally when times change. Hence, RBI and GoI needs to address this area, to prevent conversion of black-money this way, and to prevent jewelers from indirectly raising capital for their business needs, which is actually interest free debt.

MOHAN

Replied to Simple Indian comment 1 decade ago

You are right, simple Indian. Many of the Kerala based jewelers became billionaires in a very short time.

http://www.moneylife.in/article/malabar-...

MOHAN

1 decade ago

It was Corporate frauds watch's and Moneylife's articles that brought to light the illegality of Gold Purchase schemes of Jewelers.

Kudos to Moneylife and Corporate Frauds Watch.

MOHAN

1 decade ago

It was Corporate frauds watch's and Moneylife's articles that brought to light the illegality of Gold Purchase schemes of Jewelers.

Kudos to Moneylife and Corporate Frauds Watch.