I was thinking about joining a jewellery savings scheme, but my friend told me they are a “trap”. What are the hidden disadvantages or financial risks that I should be aware of?
While jewellery saving schemes like the Tanishq Golden Harvest are not scams, some financial experts refer to them as a “trap” because of several key disadvantages that benefit the jeweller more than the customer. These include the lack of protection against rising gold prices and the complete inflexibility of your saved funds.
The Biggest Trap: You Are Not Protected from Gold Price Rises
My financial advisor explained the most significant issue with these plans. When you join a scheme like Golden Harvest, you save a fixed amount of rupees, not grams of gold. He gave me an example: if the price of gold increases by 20% during the 10 months you are saving, the bonus you receive (which is typically around a 7.5% return on your total investment) is not enough to cover that massive price hike. In such a scenario, you would have been much better off buying a small amount of gold each month.
The Lock-in Trap: Your Money is Tied to One Brand and Product
My friend experienced this issue firsthand. After her Tanishq scheme matured, she saw a wedding set she preferred at a different jewellery brand. She was trapped because the large sum of money she had saved could only be used at a Tanishq store and could only be redeemed for jewellery. She could not take the cash, buy a gold coin for investment, or shop around for a better deal on making charges at another store.
The Hidden Cost: Opportunity Cost of Your Savings
My advisor also pointed out the opportunity cost of the money. For the entire 10-month duration of the plan, your money is with the jeweller and is earning no interest, unlike a bank’s Recurring Deposit. The “bonus” is the only return you get, and you can only realize that return by purchasing a high-margin product (jewellery with making charges) from them. This makes it a less efficient use of your savings compared to other investment options.
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