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Beware of Festive Offers from Jewelers

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festive offers from jewelersThe upcoming festival season is being treated by jewelers as an opportunity, even though market conditions are dismal. The government moves to keep spiraling the import duty on Gold (now at 15%) and heavy restrictions in relation to KYC of Gold, has resulted in exodus of buyers from bullions. Most of them are sitting in cash, and waiting for the right time to invest in Gold and Gold related products. Even the prices have been on a higher side for retailers to participate aggressively in gold buying.

Monsoon this year had been good and it was expected that the demand for Gold would be excellent especially in rural areas. However, the rising inflation and high interest rates has been a dragger for demand. Therefore, Gold jewelers have tightened their belt to lure more and more customers for sales through festive offers this festival season through Gold schemes.

Installment Schemes:

The adoption of innovative schemes by jewelers is on. This can be witnessed from one of the methods of PC Jewelers, where they are offering free of cost shipping for jewelry to their customers.  The concept has been similar to most of the online portals for customer products that are not charging anything for shipping. PCJ is giving an interest of 16% p.a on their value for money scheme. The company is also contributing two monthly installments from their side to the customer who pays twelve monthly installments on the product.

Meanwhile, Gitanjali gems through its “Tamanna scheme” offering a one month free installment for every twelve installments on Gold jewellery by the customer. This scheme comes under the Monthly Saving Scheme of Gitanjali, with a concept of ‘pay less and get more’.

The catch here is that some of the jewelers like TBZ in similar schemes do not allow any purchases when they contribute their portion of installment. Whereas, some companies like PCJ allow the purchases, but only at the very last day of their contribution.

Problems for Jewelry Segment:

It is important to understand that the jewelry segment these days has been in a bit of disarray mainly due to RBI norms and restrictions by the government to control Current Account Deficit (CAD) situation that is a shy away from 5%. Gold has been a major contributor to the rising deficit that has reached 4.8% of the GDP.

A move to curb the sale of gold coins and bars by sellers for controlling the rising deficit, has hit the business badly. New schemes, which are under the domain of jewelers, are therefore getting adopted to save the employment of artisans and stakeholders in the business.

Problem for Customers:

One issue that has been noted in the jewelry scheme is that the nature of purchase remains the same. If you are paying installment for purchasing Gold jewelry, then you will not be able to purchase product in any other form like coins, bars etc. Although, the sales of coins and bars have been not taking place now; but even before the ban, it was not allowed.

The other issue that has been reported in these purchases is the amount matter. One cannot hedge the purchase at the prevalent rates.  Suppose, the rate of Gold per 10 grams is Rs 29,000, and customer is expecting it to reach Rs 31,000 per 10 grams at year end. He will not be in a position to keep the amount of jewelry fixed at Rs 29,000. If the price of Gold by the end of the year becomes Rs 31,000, he will have to pay additional Rs 2,000 per 10 grams for purchase of the jewelry.

There is problem of purity in the jewelry segment. It should be taken into account, that jewelry is not a sound investment option due to purity issues. Even hallmarked jewelry is not 24 carat, and therefore these schemes are for those who are looking to purchase Gold in the near future, but cannot afford a lump sum investment.


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