Avoid Jewellers Gold Savings Scheme.... Here's why

Indians Love Gold!
Jewellery Houses like Tanishq, PC Jewellers and GRT Jewellers have been quick to latch on to this craze of Indians and have launched innovative Gold Savings Schemes to lure buyers. With as little as Rs.1000/- per month, you can save systematically with the jeweller for 11 months and the Jeweller will usually add a month's instalment FREE (some jeweller even pay two instalments) at the end of the saving period.
Yes, depending on Jeweller and scheme, these schemes offer returns in the range of 8% to 18%.
So, in essence, these Jeweller Gold Saving Schemes are EMI in Reverse. They help you buy Jewellery at a Future Date by saving and accumalating.
Sounds good. Then, what's the catch? Why are Financial Experts suggesting you to avoid these Jeweller Gold Saving Schemes?
REASONS TO AVOID JEWELLERS GOLD SAVINGS SCHEME
There are several reasons and let us look at them one by one and see the reasoning.
1. Almost every Jeweller offers you Gold only at the end of the Term and at that days price. This means you are more likely to get less Gold because of the Appreciation Factor.
Ex : If you are investing Rs.3000 on the 10th of every month to buy 10 grams of Gold at the end of the year and if the Gold price steadily goes up, then obviously you will left with less Gold and you will be forced to put extra money to buy your 10 gms Gold.
So, if say you started your instalments in January and the Gold price was 2800 per gram and at the completion of your instalments in November, the December price of Gold is 3000 per gram then you are forced to pay Rs.3000 per gram whereas the Jeweller would have bought at Rs.2800 per gram.
This drawback could be avoided if you investing through Gold Savings Schemes by Mutual Fund as the averaging works better.
		2. Almost every Jeweller forces you to buy Gold Jewellery and does not give you Cash in return. Now, what this makes you, you are forced to pay Making Charges fo Jewellery and either you pay extra cash or buy less Gold.
In Mutual Fund gold Savings Schemes you are getting CASH and thus saved the igomy of paying Making Charges, etc.
3. The Gold Savings scheme by Jewellers do have SEBI approval and thus there is no monitoring of the cash you pay. These Jewellers may be using your fund for Working Capital, business, etc and nobody checks their books. So, if tomorrow, suddenly Gold price crashes and all Investors stop their instalments and ask for Gold, then you never know how many of these Jewellers would be able to keep their word.
In Mutual Fund Gold Savings Schemes, SEBI is mandatory. Their books are mandatory checked. All your funds/investments are backed by Physical Gold.
4. Very few Jewellers offer 24 Karat Gold. Almost every jeweller offers only 22k gold. So, since you will not get cash from the Jeweller, you are buying Gold which is not 100% pure.
In Mutual Fund Gold Savings Scheme, your funds are backed by 24k Pure Gold.
5. Resale value of Jewellery is lesser. Jewellery is not made of 24 Carat Gold and also carries making charges, resale value of Jewellery is much less compared to Gold coin/biscuits/Gold bars. Since you are forced to buy Jewellery and do get cash/gold coins from the Jewellery, you are again losing.
In Mutual Fund Gold Savings Scheme, since you paid cash, you can either reinvest or buy Gold Coins instead of Jewellery.
6. You have to buy from the Same Jeweller even if the Jeweller does not have designs of your choice.
In Mutual fund Gold Savings scheme, since you are paid cash in lieu of Gold, you can buy from Jeweller of your choice.
7. If at the end of the Instalment period, if you are in need of Cash for emergency, you wont be able to use this money as you are given only Jewellery. The best you can do is to sell the piece of Jewellery and forgo the making charges.
In Mutual Fund Gold Savings Scheme, you are paid cash always.
8. In Jeweller Gold Saving Scheme your Gold purchase attracts Wealth Tax and also Capital Gain Tax (if you sell within 3 years).
In Mutual Fund Gold Savings Scheme, there is no Wealth Tax and you are taxed for Long Term Capital Gains just after 1 year (in physical gold, you have to wait for 3 years).
IN A NUTSHELL :
Jewelers not only earn interest on the buyer's installment but also sell the jewelry after earning a handsome margin. For 20 grams gold jewelry, he earns Rs 600 making charge and sells 22 carat gold at rate of 24 carat gold. So he earns approx 8% extra by selling gold of 22 carat purity.
For jewelers, this scheme is a win-win situation as he gets the chance to sell his product, and at the same time he earns interest on the customer’s installment.
Some jewellers do offer "zero wastage" to lure gullible investors, but do note that these "zero" wastage if only for few select designs/pieces. INtricate desingner Jewellery could still see a higher levy.
For lower middle class people, and for people who want to accumulate Gold for marriage or other purposes in near future, the Jeweller Gold Saving Scheme looks okay, but for all other purposes, Mutual Gold Saving Scheme is the BEST.
If you are hell bent on investing in these schemes of Jewellers, then I feel that PC Jewellers and GRT are better among the Worst.
While you may argue, that since the Jeweller gives me 1 month instalment FREE and the returns works out to 15%, do note that the same investment in Gold Saving Scheme via SIP would have given you 27% return. Jewellers are not here for charity, they give FREE last instalment with money made from your previous instalments!
Purity is another matter of seriuos concern. Though the use of "hallmark" has reduced this malice, still it persists.
Indian households predominantly purchase gold in the form of jewellery. Gold Jewellery has aesthetic appeal and is widely used for ornamentation. Besides, investment in gold jewellery is also done for a special occasion such as a marriage, birth of a child etc. However, jewellery by itself has a major drawback - there is a loss of around 30% due to making and melting charges when you buy and sell.
WHAT I FEEL.................
Gold continues to be a non-productive asset and over long periods of time, returns from gold seldom beat returns from productive assets classes like equities. Unless you are an active investor who can spend a lot of time rebalancing your portfolio, I recommend an exposure of anywhere between 5 to 15% of your total assets in gold.
GOLD ETFs:
Gold ETFs or Gold Saving Schemes by Mutual Funds offer you the option of buying in monthly instalments which ensures that you buy Gold at various Price points thus averaging out your Purchase price.
If you really want to accumulate Gold through monthly instalments, the BEST option would be invest through Gold Savings scheme offered by Mutual Funds. This will also help you in averaging your instalments.
BUT I STILL MAINTAIN, IF YOU WANT TO BE WEALTHY, THEN EQUITY IS THE BEST INVESTMENT. NOT GOLD, NOT DEBT, NOT FDs, NOT EVEN REAL ESTATE.
If you had invested Rs.100 in 1980 in both Gold and Equity (Sensex), the value of gold now would be Rs.1314 and that of Equity (Sensex) would be Rs.15600/-
The most important thing is the proper asset allocation.Both equity and gold mutual funds have a place in a portfolio.For long term investment equity mutual funds should form core of the portfolio with gold funds acting as a hedge to balance and add stability to the overall portfolio.So, invest in a gold fund once you have built a well diversified portfolio of equity mutual funds with 5 to 10% portfolio allocation to gold.
As has been pointed out often, gold is an unproductive asset. Unlike stocks or bonds, it's a type of asset where value depends on nothing but a shared belief that the value will rise and keep rising.
ANOTHER POINT TO NOTE :
Most investors invest in Bank Recurring Deposits to buy Gold at a future date. This is not a good idea since Interest Rates may not keep pace with the rise in Gold price and they will not be able to achieve their objective.
FINAL WORD :
Gold Jewellery Schemes aim is to give you Gold/Jewellery whereas gold Savings Funds/Gold ETFs aim to give you Cash.
So, if you want to buy Jewellery in the near future (say 1 year), then go for Jewellery Gold Savings Schemes, but if you want to buy Gold as an Investment or if your Gold usage is at a later date (say your daughter's marriage, which is several years away) , then its Gold Savings Fund/Gold ETF blindly.
Caveat, if it is for consumption, then unless you have a very trusted and reliable Jeweller (ready to buy back from you), dont think of these Gold Savings Schemes by Jewellery Stores.
Buy Gold ETF , Sell the Units when you want gold and from the money you get , go buy gold !
Happy Diwali and best of luck,
Srikanth Matrubai

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SBI GOLD FUND - INVEST

SBI has come with SBI Gold Fund.
You can invest if you are under exposed to Gold.

SBI has launched SBI Gold Fund – its FoF that feeds into its gold ETF.
The SBI Gold Fund is very similar to Reliance Gold Savings Fund and hence
the working of the fund is known to most of you, my clients.

If you have not yet understood its working…please read…
http://goodfundsadvisor.blogspot.com/2011/02/reliance-gold-savings-fund.html

This fund will be investing in the gold exchange traded fund (ETF) as an
underlying. So this method is very convenient to those investors who are
not very comfortable with buying the gold ETF through the stock
exchanges.
SBI Gold  fund will enjoy the same tax benefits as any exchange traded gold
ETF.
There will no limits on investment.

GOLD PRICE OUTLOOK :

Gold has been a star performer for the past 4 years.
Being seen as a safe haven across universe, Gold has been chased by all

types of investors. The recent Economic upheavel across the World has

pushed up the Gold prices and there is no reason why Gold should not do
well.
Gold, as we know, has been a star performer for the past couple of years.
Gold is a counter cyclical in nature and hence an ideal asset tool in
diversification.
Gold should be looked at as a diversification, as a hedge in your portfolio.
Even if everything else goes wrong, this is one asset that would do well,
particularly in times of uncertainty. So it should be looked at from an asset
allocation or diversification point of view, rather than taking a view on the
price where it is trading today.

Why invest in SBI Gold Fund??

There are 6 reasons for you to invest in a Gold Saving Fund and SBI Gold
Fund in particular…
1.
In Gold ETF space, SBI Gold has been a outperformer because the Fund has
been fully invested and has minimal tracking error.
2. The SIP option gives you the advantage of buying Gold in as small
quantity of Rs.100/- which is not possible with a Gold ETF.
3. Yes, being a Fof, there is no Compulsion of Demat Account.
4. Excellent way to accumulate Gold without being concerned about the
Secuirty, Purity, making charges, etc.
5. Taxation laws enable you to take the benefit of Long Term Capital Gains
after just period of one year of its holding which is not so in case of Physical
Gold.
6. The Biggest plus point for the Gold Saving Fund according to me, going
forward, Gold is going to be more and more volatile, hence will benefit SIP
investors immensely.
SIP in SBI Gold Fund NFO is likely to generate higher Returns than GOLD
ETF, with the assumption that Gold Prices may continue to be VOLATILE by
5-10% . Investor will be invest in this Fund during Declines in Gold
Prices(via SIP of course). This is likely to Reduce the Cost of Purchase of GOLD UNITS in Fund
of Funds.

Gold recent sharp rise will see it going periodic price correction which will
help SIP investors average their cost.
For someone, who has no exposure to Gold at all, this Fund is an excellent
way to get an exposure and set his Asset Allocation right.
If you are investing through Sips, YES go for SBI Gold Fund…otherwise it is a
Strong NO!!!
Best of luck,
Srikanth Matrubai

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SUPER SIP FUNDS

Here is a short list of some selected funds which have given excellent returns





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ADVISE ME ON ONE MORE SIP

My First Follower Mr.Akhil sharma from Delhi wrote :

Hello Sir

I hope this mail finds you and your loved ones in the pink of health.

I have as promised earlier two ongoing SIPs in Fidelity Equity Fund and Sundaram Select Focus Fund.(Rs.500 each)





I am planning to start one more SIP for the amount of Rs.1000 per month.

I'm not so sure about the funds though.



I have in mind HDFC TOP 200 Fund and DSP Top 100 Fund.



Please advise where should i put my money.Suggest any other fund apart from these two if necessary.



P.S : I'm planning to invest for a long term.



SRIKANTH MATRUBAI replied :



Dear Akhil sharma,

Thank you for your kind words. I heartily reciprocate your feelings and hope the same there.

Do continue your Ongoing Sips in Fidelity Equity Fund and Sundaram Select Focus Fund.

I am very happy about you starting another sip of 1000pm.

Both the Funds you have selected i.e., HDFC Top 200 Fund and DSPBR Top 100 Fund are very good. You can choose any of them. Both these funds are a 'must have' in any portfolio.

Whereas your two existing Funds are both Diversified Funds with No Sector or Cap bais, it is prudent to have a Large Cap Fund and you are on the Right Track.

My Personal Choice among the two would be HDFC Top 200 Fund. The Fund is not very sexy in terms of its Presentation, but it does its job quitely and has been very very consistent since its inception and boasts of a Great Track Record.

Do evaluate your portfolio every 6 months or so and take appropriate action.

Read this http://goodfundsadvisor.blogspot.com/2010/03/use-8th-wonder-of-world.html

And also this post http://goodfundsadvisor.blogspot.com/2010/03/best-funds-for-new-investor.html

These two articles will help you in your decision making.

Regards,

Srikanth Matrubai,

Bangalore



P.S.:

If you are going for HDFC Top 200 fund, go for a Rs.500 sip on two Different Dates to take advantage of NAV Volatility and in the process earn more.

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SAVING TAXES??? - ELSS IS THE BEST OPTION

KILLING TWO BIRDS WITH ONE STONE!

You are sure to be bombarded with ads of Tax Schemes in the coming days as the 'Tax Season' draws near. ULIPs & ELSS will be the prominent ones who will be eyeing your wallet.
My advise, Go for Mutual Funds ELSS. Among all Tax Saving instruments, ELSS stands out. Not only your Investments into the ELSS is tax free, but also the dividends you earn and also the returns at maturity are also tax free.


It is proven beyond doubt that among all the Tax Saving Instruments, Equity Linked Savings Scheme, popularly known as ELSS, the returns from ELSS have been the highest.

What is ELSS?
ELSS is the acronym for Equity Linked Savings Scheme. It is basically a diversified equity scheme, which has a 3-year lock-in period. They are linked to Stock Market Returns, hence though volatile, the returns tend to be higher than traditional Tax Savings Scheme.



Why ELSS :
1. Investors in ELSS under Dividend Payout Option have the advantage of getting Tax Free gains even during the lock-in period of 3 years.
2. Lowest Lock-in period of just 3 years, comparing favourably with maturity period of NSC (6yrs) and PPF (15 years).
3. Minimum investment is only Rs.500., very low entry barrier.
4. Investors in ELSS have the advantage of investing through Systematic Investment Plan.
5. Some ELSS schemes offer Free Life Insurance Cover and also Personal Accident Death Cover and even Critical Illness cover!!!
6. Historically, provided better returns than both NSC, PPF and ULIPs.
7. Profits earned after the Lock-in Period is Competely Tax-Free.
8. Upto Rs.1Lakh is eligible for deductions under Section 80c compared to Rs.70000 in PPF.
9. Due to its 3 year lock-in period, the Fund Manager has the freedom to invest in Fundamentally Strong Shares with huge future potential and can afford to 'wait' to unlock the value. Thus, it has been observed that ELSS schemes do beat (in terms of returns) even Diversified Mutual Funds more often than not.



Why NOT other Tax Saving Instruments :
1. ULIPs or LIC Premium :
These Instruments are designed to provide you Cover, which invest only a PART of your invested amount. Moreover the Entry load in some of these can be as high as 40%., where as in ELSS , it is NIL!!!!!
2. PPF and NSC :
Not only the Lock-in period is high, but also the returns are very less, hitting you hard and sometimes not even covering Inflation.
3. Five Year Bank Fixed Deposits :
Very Low Returns, Low Liquidity and Interest IS Taxed on Maturity.

FREE INSURANCE COVER TOO :
Birla Sun Life Tax Relief and HSBC Tax Saver Equity are offering free critical illness cover, while DWS Tax Saving is giving free life insurance.
The Reliance Tax Saver and Kotak Tax Saver scheme comes with a free life insurance cover.
Taurus Tax Shield and Principal Personal Tax Saver and Prinicipal Tax Saving Fund offer Personal Accident Death Cover.

Apart from the ELSS Funds, there are Pension Funds namely, Templeton India Pension Plan and UTI Retirement Benefit Unit Plan, which invest a minimum of 60 per cent of their assets in fixed income instruments.

Systematic Investment Plan

Best way to invest in ELSS is through Systematic Investment Plan(SIP). With SIP you can invest a small amount every month for a specific time period. With SIP investor can take advantage of fluctuations in the stock market. So investor will get more units when the market is down and get less units when the market is up. For eg if you are investing Rs 1000 every month and you will get 100 units for when Net Asset Value (NAV) is 10 and will get 50 units when NAV is 20. So investing a fixed sum regularly helps to cover the market fluctuations by rupee costs averaging.
SIPs are a tried and tested method of minimizing risk and yet enjoying good returns,by regular,periodic investment,over a long horizon.


A FANTASTIC COMBINATION
SIPs along with the tax benefit that can be availed of by investing in ELSS,makes this investment option very attractive.Instead of simply putting in a chunk of Rs 1 lakh at the end of each fiscal year, if you develop a healthy saving habit,you could invest a fixed amount every month and benefit from the advantages of both SIPs and the tax rebate.
When you invest in ELSS, through the SIP route, you enjoy the multiple benefits of better market-linked returns in the long run, rupee cost averaging and a tax break. So, happy investing!



So........

ELSS give you the two-in-one advantage of saving tax and wealth-building. So, do not wait for the "March" last minute rush to save taxes and make a hasty decision.

Tax Exemption twice in 6 years!!!
You can withdraw your Tax Saver Funds at the end of the 3 years and when you reinvest the same, you get Tax Exemption TWICE in six years compared to just once in the case of NSC.



GO FOR DIVIDEND PLAN :
Almost all equity-linked saving schemes have two fund options — growth and dividend. Unlike a growth plan, an investor gets annual payouts from the dividend schemes before the final redemption of units.

The trick here is to invest in the dividend plan of an ELSS. For instance, if one invests Rs 1 lakh in an ELSS, one saves a tax outgo of Rs 33,990 (at the highest tax rate of 33.99 per cent) under section 80C.
Now consider this. An ELSS has announced a dividend of 50 per cent. The net asset value (NAV) per unit of the scheme is Rs 50. Suppose one invests Rs 1 lakh in the fund before the record date for the dividend. After the record date, the investor will get a dividend of Rs 10,000 at the rate of Rs 5 per unit for 2,000 units that have been bought. Therefore, effectively the individual invests Rs 90,000 (Rs 1,00,000 minus Rs 10,000) and saves Rs 33,990 in tax outgo.

In other words, on an investment of Rs 1,00,000 in the dividend plan of the ELSS, one gets a post-tax return of Rs 43,990 (Rs 33,990 plus Rs 10,000), or 43.99 per cent.



RECOMMENDED ELSS FUNDS :
Religare Tax Plan
Birla Sunlife Tax Relief 96 Fund
Sundaram Tax Saver
HDFC Tax Saver
Franklin India Tax Shield
CanRobecco Equity Tax Saver
Fidelity Tax Advantage
SBI Magnum Tax Gain

For more details on My Pick of the Best ELSS Funds, look out for my next article.

Best of luck,
Srikanth Matrubai




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Rs.100 SIP in SBI Magnum Contra

Mr.A asked :
Dear sir,

Thank you for your great advices.
Your blog http://goodfundsadviosr.blogspot.com is doing a great service to the Mutual Fund Investor Community.
Recently SBI Magnum Contra MF allows inverstor to invest in this fund through SIP of Rs. 100. Is it okay if I start investment Rs. 250 per month for next 10 years in this fund? If I opt for SIP of Rs. 100 or below Rs. 500, I will have to continue SIP to Magnum Contra for next 5 years. It is mandate from AMC. So I have no way to change my stand after one year if I invest Rs. 100 per month in Magnum Contra. I can reduce SIP tenure from 10 years to 5 years at best.

SRIKANTH SHANKAR MATRUBAI replied :
Dear A,
Yes, you are right. SBI has recently has launched a Micro SIP called Chota SIP for as low as Rs.100 per month and the investment period of SBI Chota SIP would be minimum of 5 years. Currently SBI Chota SIP allows to invest in SBI Mutual Fund’s Magnum Balanced Fund, MMPS 93, MSFU Contra Fund, and SBI Blue Chip Fund and later on this plan would be extended to other schemes as well.
There is nothing wrong in planning for SIP for a 10 year period but not in one fund. You might find later on say after a year or so that the performance of this fund is lagging compared to others and might want to invest through SIP in another fund. Initiate SIP for one year and review after that. If satisfied, u can go for a further one year SIP. In my view u should opt 3 SIPs of 100 Rs. each on 3 different dates in a month for ur investment in SBI Contra fund. The split SIP `ll provide better averaged cost to u. Note, that for a SIP of Rs.100, you need to invest for a minimum of 5 years. Also, there is no need for you to submit your PAN Details, just your ID proof is enough.

FUND ANALYSIS :
Do not let the name mislead you, SBI Magnum Contra is more of a Diversified Fund and is a good investment for a time horizon of 5 years or more.
Inspite of frequent changes in the Management Team of the Fund, the performance of SBI Contra has been impressive. The Fund has consistently beaten its Benchmark and Category Average handsomely.

You can consider investing in the Fund.



NOTE :
Even though the AMC states that you will have to invest for 5 years minimum, it is your will and wish to stop the sip anytime if you feel that the Fund`s performance is not upto your expectations. However, for redemption, admissible exit loads will be applicable. Do review the performance of all your funds every year or so.
Best of luck,
Srikanth Matrubai

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