Untapped Investment Potential of Gold Purchase Plans

Indians appetite for gold is unbelievable. It doesn’t matter to us if the price sky rockets, or if the Government imposes a ban or even if gold suddenly starts to bite us! We need gold to survive. The price of gold is amazingly higher than anyone ever had expected. Yet, the demand for it isn’t waning. India consumed 963.1 tonnes of gold in 2010.

With prices all set to go higher, middle class Indians are opting for a way to bypass this irritant. The new found love in Gold Purchase Plans is a reflection of this.

Gold Purchase Plans Explained

So how does a Gold Purchase Plans actually work? There are two ways in which these plans operate.

Regular Investment Method: In this type of plan the jewelry companies accepts a regular monthly payment from customers usually as low as Rs. 1000 for a period of 12 months to 24 months. The customer is entitled to receive interest and bonus for the money invested.

Typically, for a customer who pays installment for one year gets one month bonus. For example if you invest Rs. 1000 for one year your fund adds up to Rs 12,000. However, with one month bonus you get extra Rs. 1000 increasing your fund amount to Rs. 13,000. For two years investment some jewelers offer two month bonus.

At the end of maturity, the customer can opt for either gold coins for the amount or go for gold ornaments. If the customer chooses gold ornaments the jewellers discount charges on designing.

Systematic Gold Investment Plan: Some companies offers to credit an equal amount of gold to the customer’s account at the price prevailing when an installment is paid. On maturity she can purchase the gold in the form of gold coins or ornaments. This way she can bypass increasing price of gold if she buys gold at a latter date.

SIP method helps to average the cost of gold over the year. This is very useful as prices are going up. However, it also helps the customer to buy up gold when the price comes down on a correction. At lower prices more gold is purchased and at higher price fewer amount of gold is bought. This helps in averaging the cost of your gold purchase.

Overall, SIP method helps gold investors in the same manner as it helps investors in equities.

How Customers and Jewelers Benefits from Gold Purchase Plans

These plans are provided by jewelers to attract more customers and make them spend more, even if the prices are high. However it is a win-win situation with both the consumer and the jeweler gaining from the transaction.

Benefits to Customer

Rupee Cost Averaging: For the customer Gold Purchase Plans works like a Systematic Investment Plan. Every month she can invest a part of her income into this plan. At maturity she gets gold worth the price of money invested. The money gains interest and jewelers also provide bonus for the investment. This makes it a good investment plan in gold especially for those who cannot pay at one go.

Helps Low Income Group to Invest in Gold: Considering the fact that gold is very important to our lives and is embedded in the cultural psyche of the Indians, most of us are forced to invest in gold. Thus, it forces people with limited income to purchase gold for marriages and other occasions. With Gold Purchase Plans people with low income can slowly make a corpus and purchase gold.

Benefits to Jeweler

Increased Flow of Money: A jeweler is benefited by having a regular flow of money every month. This helps the jeweler to buy gold and build inventory. Before the maturity date the jeweler can make use of the money invested for other investments or expenditure.

More Customers More Sale: More customers are attracted to jewelers who provide attractive Gold Purchase Plans. Furthermore, the prospect of buying lump sum gold through small systematic investments can make customer purchase more than they would have otherwise. All this contributes to the overall sale to rise thus profiting the jeweler.

Gold Purchase Plans are a good investment. Gold is now not only a hedge against inflation but is fast turning in to a safe investment asset. This makes it worthwhile to invest in gold in any form.

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