Gold Silver Reports — Govt Must Control Unauthorised Gold Deposits — Some large jewellers have either stopped or modified their gold deposits schemes after new Companies Act put restrictions on them. This is because the new Act has brought `gold deposits’ by jewellers also at par with other `company deposits’ .
That means corporate jewellers can’t collect more than 25% of their net worth as deposits and also can’t offer more than 12% interest on them. And just like other deposit taking companies, these corporate jewellers also need to take permission from Ministry of Corporate Affairs (MCA) for collecting money.
While some large jewellers have started following new guidelines, others are still collecting deposits in the old fashioned way . In other words, collection of `unauthorised gold deposits’ by some jewellers, whether they are incorporated as companies or not, still continues unabated. This is because there is no one to regulate these jewellers and also because most investors are still not aware about the new changes .
Most of these jewellers still use the `gold deposit structure of 11 months’ that was very popular earlier. Under this 11 months structure, investors need to pay installments for 11 months and after that, investors can buy gold worth 12 months of installments.In jewellers’ parlance, 12th installment is paid by the jeweller .
What is the specific problem with this 11 months plan? Return offered here goes beyond 12% limit, mandated by the Companies Act. So most large jewellers have already modified this plan and now offer only specific percentage as their contribution at the time of buying jewellery. Due to this, attractiveness of the `regulated gold deposits’ has come down. In addition to promising higher returns, jewellers with `unauthorised gold deposits’ also offer massive discount on making charges.
We are not at all against investors getting better returns on gold deposit schemes. But the main issue with these `unauthorised gold deposits’ is that there is no mechanism to verify its end usage. Though these jewellers are supposed to buy gold with the advance money collected from investors, they may not be doing it. That means the risk of swings in gold prices is born by these jewellers and they may go bankrupt if gold prices shoot up suddenly .
More dangerous varieties are also operating under this disguise. Reports say that some jewellers are using it just as a money chain -i.e. paying high interest to attract new customers and then use the new depositor’s money to redeem obligation for previous depositors. And just like any other money chain, this structure will also crumble once the money flow from new depositors stops.
Despite being doing this without licences, some of these jewellers have appointed big celebrities like film stars, footballcricket players, etc. as brand ambassadors and use their good will for this.Investors should note that these brand ambassadors don’t have any investment here and therefore, should not make investment based on their words. Some gold deposit schemes like this, promoted by mega stars, have already shut shop in Kerala and the investors have started filing complaint against the sponsors of these schemes. While investors should remain alert and stay away from unauthorised gold deposits, government should also take steps to control them. — Neal Bhai Reports