Considering gold SIPs from jewellers? Here's all you need to know about gold savings plans

Diwali 2024: As the festive season is here, jewellery stores across India ramp up their promotions for gold Systematic Investment Plans (SIPs), targeting customers eager to invest. But are these plans genuinely a smart investment choice? Here’s everything you need to know about gold savings plans.

What is a gold SIP?

Gold savings plans allow consumers to invest small amounts at regular intervals, rather than committing to a hefty one-time purchase. This can be particularly appealing to those who want to build their gold holdings gradually.

For example, consider a plan where you deposit Rs 5,000 each month for 11 months. By the end of this period, you will have invested a total of Rs 55,000. Many jewellers add a bonus month’s worth of gold, effectively giving you gold worth Rs 60,000 at maturity—a return on investment of about 9%.

The way these plans function is straightforward. Each monthly deposit is converted into gold based on the current market price. For instance, if the price per gram is Rs 5,000 in the first month, your Rs 5,000 will purchase one gram of gold. If the price increases to Rs 5,500 in the second month, you would acquire approximately 0.91 grams of gold. Over 11 months, assuming an average price of Rs 5,250 per gram, your total investment of Rs 55,000 could yield around 11.47 grams of gold, factoring in the bonus.

Here are few notable gold savings plans in the market:

The Tanishq Golden Harvest scheme requires a minimum investment of Rs 2,000 per month for 10 months, with participants receiving a discount of up to 75% on the first instalment value at maturity.

The Kalyan Jewellers Yearly Gold Savings Scheme, known as the Dhan Samriddhi Scheme, offers systematic purchases for wedding jewellery, allowing members to make online monthly payments and providing discounts of up to 2.67 times the membership fee over an 11-month duration, or up to 6 times in a 6-month scheme.

Lastly, the Malabar Gold Investment Scheme includes options such as the Golden Bloom Buy Plan, where participants make 11 monthly instalments and can purchase gold without incurring making charges of up to 18%, and the Golden Glow plan, which allows investors to accumulate gold equivalent to their total instalments without charges.

What are the advantages of gold SIPs?

Affordability and budgeting

Gold SIPs make gold investment more accessible by allowing you to spread the cost over time. This structured approach aids in budgeting, making it easier for many to participate in gold investments without straining their finances.

Hedge against inflation

Gold has historically served as a hedge against inflation and currency depreciation. During economic uncertainty, gold often retains or increases its value, making it a safer investment in turbulent times.

Additional perks

Many jewellers offer enticing incentives, such as waiving making charges after completing the instalment period or providing substantial discounts on future purchases. These benefits can enhance the overall value of your investment.

Encourages saving discipline

By committing to a monthly deposit, you cultivate a habit of saving and investing, which can be beneficial for your overall financial health.

What are the potential downsides of Gold SIPs?

Market risk

The value of your returns is directly tied to gold prices. If prices fall significantly when your plan matures, your investment value may be less than expected. For instance, if gold prices plummet during the investment period, your accumulated gold could be worth much less than your total deposits.

Liquidity concerns

Unlike other investment avenues, you won’t receive physical gold until the end of the plan, which means your investment is less liquid. If you need immediate access to funds, selling gold SIPs may not be feasible.

Limited flexibility

These plans often restrict you to purchasing from the jeweller you initially chose, limiting your options for obtaining gold at competitive market rates. In contrast, digital gold and ETFs offer greater flexibility to buy and sell based on market trends.

Lack of physical gold until maturity

While accumulating gold over time is advantageous, many investors prefer the psychological and practical benefits of owning physical gold right away, which SIPs do not provide until the end of the term.

What should be your approch?

Before committing to a gold SIP, assess your investment goals. These plans can be useful for saving towards specific occasions, like weddings, but if you’re focused on capital appreciation or liquidity, other options may be better. Stay informed about market conditions; if gold prices are expected to rise, a SIP might be advantageous, while a downturn might warrant reconsideration. Compare different jewellers and their plans to find the best terms and benefits. Lastly, diversifying your investment portfolio by balancing gold with other asset classes can help mitigate risks.

Is it worth it?

Whether a gold savings plan is suitable for you depends on your financial goals. If you plan to make a significant gold purchase soon, gold SIPs can offer a structured saving approach and potential bonuses. However, if you prioritise flexibility and immediate ownership, exploring digital gold or ETFs might be a better option.