Indians are fond of gold and gold ornaments. Almost every household has a stock of gold ornaments, depending upon financial capacity and customs. It is unthinkable to have an Indian marriage without the bride and guests flashing some of their collection of jewellery. Also, gifting gold on the occasion of marriage of a close relative is almost a ritual.
Due to the tradition, the thought of soaring gold prices and accumulating enough gold for their son’s and/or daughter’s marriage always remains in the mind of parents. Here is how the worry of having enough gold for your son’s and/or daughter’s marriage may be taken care of:
Gold/Gold jewellery: People look to buy gold or gold jewellery whenever they have some extra money and whenever there is a dip in gold prices. Buying gold at cheaper rates ensures getting higher quantity to accumulate jewellery in advance and would alleviate the worry of buying at the time of marriage. However, there are some issues involved in buying physical gold in advance. First of all, the purity of gold you buy is a concern and secondly, safety of keeping gold is a big worry. Apart from locking money in gold, you have to hire a locker and/or buy insurance policy to protect the gold from getting lost or stolen or robbed. If you buy gold jewellery, the making charges will be an additional cost.
Gold Funds: Almost all Asset Management Companies (AMCs) have gold funds or gold ETFs in their offering of mutual fund (MF) schemes. Apart from investing in gold, such funds also invest in stocks of gold mining companies, jewellery companies etc, which ensure diversification and stability in return. For example, when price of gold falls, the stock prices of jewelly firms would increase and vice versa. To reduce the dilemma of when to invest in such schemes, SIP would be the best way. However, you should assess the performance and risk factors of a fund before investing in it.
Sovereign Gold Bonds (SGB): Issued by the RBI on behalf of the Government of India, Sovereign Gold Bonds (SGBs) are government securities denominated in grams of gold. Apart from eliminating risks of storage, purity, loss of making charges etc, the quantity of gold for which investments were made in SGB also remains protected as an investor receives the ongoing market price at the time of redemption or premature redemption. Moreover, the investor will also earn 2.5 per cent interest per annum, which will be paid half yearly. However, there may be a risk of capital loss if the market price of gold declines at the time of redemption, even as the units of gold, for which investments were made, remain protected. A new series of SGB is open for investments from October 15 to October 19, 2018, in which one may invest minimum Rs 3,146 (additional discount of Rs 50 is given for online investments) to get one unit of SGB, which is equivalent to one gram gold. The maximum limit of subscription in a financial year is 4 kg for individuals, 4 kg for Hindu Undivided Family (HUF) and 20 kg for trusts and similar entities notified by the government from time to time.
Gold Monetisation Scheme (GMS): The aim of government’s Gold Monetisation Scheme (GMS) is to mobilise gold held by households and institutions of the country and facilitate its use for productive purposes, and in the long run, to reduce the country’s reliance on the import of gold. Under this scheme, you may deposit the gold and gold jewellery kept at your home in Gold Deposit Account of a commercial bank (except RRBs) after getting the purity checked at a Collection and Purity Testing Centre. You will get interest on the deposited gold depending upon the duration of the deposit. The options of deposits available are – Short Term Bank Deposit (STBD) for 1-3 years and Medium and Long Term Government Deposit (MLTGD). The medium term deposit will be for 5-7 years with lock-in period of 3 years and the period of long term deposit will be 12-15 years with lock-in period of 5 years. Once the lock-in period is over, withdrawals may be made either in gold or cash equivalent of the deposited gold at the prevailing market price even before the term ends, but in such cases the rate of interest on the deposit will be reduced. Although the scheme helps in eliminating the risks of keeping physical gold, but it is still not very successful as the gold jewellery, with which depositors have emotional attachment, is melted. Apart from emotional issue, it also involves making charges. The lock-in period in withdrawal also a detrimental factor.
Apart from the above options, some reputed jewellers also have their schemes, in which people may pay in advance in small amounts, which may be converted to gold at the end of maturity period. They also offer some discount in gold prices or making charges to the investors. However, there are risks involved in such schemes of private players, which got exposed after the closure of Geetanjali Jewellers following the Nirav Modi scam.