Gold Deposit schemes losing their sheen in India

NEW DELHI (Scrap Monster): The response to the recently re-introduced monthly gold deposit schemes have remained tepid, says All India Gems and Jewellery Trade Federation (GJF).

The installment schemes in the new format have failed to attract investor interests as returns from these schemes are not very attractive as before. Under the new Companies Act that came into effect April 1^st, 2014, the money paid into installment schemes is deemed as deposits. Under the rules and regulations of RBI Act, the jewelers are not allowed to offer more than 12% return on these deposits. In general, gold as an asset class has continued to deliver muted returns, especially at a time when alternate investments such as stock markets have managed to give handful returns, noted GJF.

A few jewelers had reintroduced jewelry installment schemes as per the guidelines of the new Act. Incidentally, Titan Company Limited-the country's largest gold jewellery retailer had reintroduced the gold deposit schemes in line and compliant with government regulation as ordained by the new Companies Act. The earlier gold deposit schemes such as 'Golden Harvest' and 'Swarna Nidhi’ had offered attractive returns of up to 17% per annum and had soon become hot favorite with investing community in the country. According to the company, the response to the scheme has been modest so far.

The Federation noted that it is too early to conclude whether these schemes were successful or not. Volatility in gold prices was the main factor that attracted common people to invest in monthly installment schemes. However, gold prices have more or less stagnated nowadays, making price protection schemes unattractive.

Meanwhile, the industry body urged the Reserve Bank of India and the Ministry of Corporate Affairs in India to reinstate the earlier scheme to the benefit of customers.