I got a brochure from the Tanishq showroom near my house, which said about a gold savings/purchase scheme, and said that was the best savings scheme available.
The scheme is, pay Rs. 500 a month for 11 months, the 12th month is free and Tanishq pays a bonus of Rs. 300. So, by paying Rs. 5500 over 11 months, you can purchase Rs. 6300 worth of gold at the end of the year. This seemed too good to be true.
I thought, what if I purchased Rs. 5500 worth of gold now, and see how much I get at the end of the year?
Let's assume the gold price today is Rs. 1500 (yesterday, it was Rs. 1480), and I buy exactly how much I can purchase for Rs. 5500 or 6300. I also assume a 10% increase in gold price the next year (actual increase from last year was 4.5%) and over 5 years, gold price will increase a modest 1.5 times (over the last 5 years it was 1.46 times)
Increase Gold Price Wastage Purchase Price Purchased Gold (g) Sold @ T5 Profit @ T5 Outright – Tanishq scheme
T0 1500 15.00% 1725 5500 3.19 13152.17 7652.17 256.52
T0 1500 15.00% 1725 6300 3.65 15065.22 8765.22 1369.57
T1 10.00% 1650 15.00% 1897.5 6300 3.32 13695.65 7395.65
T5 150.00% 4125
There is no option of buying gold coins, the item with the minimum wastage.
This option is available in UTI Gold ETFs, which I assume, going for the SIP plan, if that exists for gold ETF. UTI roughly traces the day's gold price.
Month Amount Price Units purchased
T0 500 1500 0.33
T1 500 1513.5 0.33
T2 500 1527.12 0.33
T3 500 1540.87 0.32
T4 500 1554.73 0.32
T5 500 1568.73 0.32
T6 500 1582.84 0.32
T7 500 1597.09 0.31
T8 500 1611.46 0.31
T9 500 1625.97 0.31
T10 500 1640.6 0.3
5500 3.51
Average purchase price 1568.1
T5 After 5 years 4125 14468.18
Profit 8968.18
A Bank FD (6.5% ROI, Rs. 5500 for 5 years)
Principal 5500
RoI 6.50%
Duration 5
Amount 7592.31
Profit 2092.31
Thus, Tanishq doesn't seem to offer me the best savings plan as it claims in its brochure. Outright purchase is more profitable than going for this dubious "best savings scheme".
This scheme is definitely not geared towards anyone from middle-middle class or below, since gold is always sold at a premium over the other shops. They wouldn't purchase here in the first place, and they definitely would be prudent enough to see through the smoke.
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8 comments:
I am very interested in what you are saying, however not able to follow the calculations. Can you please make the rows and columns with headings more clear - eg a table? Thanks a lot.
THE CALCULATIONS ARE NOT CLEAR HOWEVER THE PRICE WHICH WAS RS.1480 IN MAY 2009 IS RS.1814 AS ON 14.05.2010. THE INCREASE IS 22% WHAT IS YOUR OPINION REGARDING THAT ????
I happened to google for Tanishq SIP and come across your blog which seems resourceful,however considering its an old post I am not quite sure if I shall receive a response but I would like to get a better understanding of the same.I have a 3 month old daughter and would like to invest in gold-long term,the Tanishq add showing :your gold grows along with your daughter seemed very promising,however before I make it a part of my portfolio I want to get a non biased opinion
Yes, i totally agree with you. The probably best scheme that a jeweller offers is from Prince Jewellery and the scheme is called as PRINCE 916 GOLD ACCUMULATION SCHEME. It works just like a SIP shceme and they allocation gold to your account just like Mutual Fund units and at the end of the scheme you get bonus too. That's probably the best scheme i have come across.
very nice scheme for us(middle class)
Such schemes can be useful if your income and savings are low. Let's say you can save 1000 rupees from your salary every month after expenses. You may be tempted to spend a few hundreds on going to movies, eating out, etc. if you keep it as cash. Therefore, you can invest it in such schemes to avoid wasting the money.
Many people are poor at financial management and don't know how to save money. They will spend their money impulsively. For such people this can be useful.
Very nice post and the schemes are very useful for middle and also upper middle class people
Gold price in hyderabad
well said..but wat if gold price comes down u lose right ,peak price of gold is 31.5k n now its 28.5k per 10 gms.
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