India is the second largest consumer of gold and ranks only next to China. Traditionally, gold jewellery has been popular with Indians and almost no Indian wedding is complete without gold jewellery. However, in the recent years, investment demand for gold has been rising. New modes of buying gold have emerged. Today, one can buy gold without holding it in physical form. With emergence of gold Exchange Traded Funds (ETFs) and gold fund of fund schemes, people are looking beyond buying gold in physical form. To generate more buying interest, many banks and Non-Banking Financial Companies (NBFCs) launched gold deposit schemes. These schemes are regulated by RBI. But it has been observed that there are hundreds of schemes in circulation which are launched by non-bank or non-NBFC promoters. Securities and Exchange Board of India (SEBI) is all set to clamp down on such schemes.

Why SEBI is planning to take action?

Any money pooling scheme that is launched to earn profits and has corpus of Rs100 crore and above is classified as a Collective Investment Scheme (CIS) qualifying for SEBI regulation. As reported by a reputed newspaper having daily circulation, there are atleast 100 such schemes which have pooled amounts in excess of Rs 100 crore. Moreover, there are many other schemes with lesser corpus, launched by non-bank promoters such as jewellers and other entities involved in gold bullion business. Usually they involve sale and purchase of gold but they are not regulated, which leaves a scope for fraud. Also, those gold-linked money pooling schemes involve issuance of bonds are security market transactions and thus need to be regulated.

There have been several Public Interest Litigations (PILs) filed against jewellers offering gold linked schemes wherein a buyer pays monthly installments and gets some returns; usually in the form of discounts. More often, the jeweller would pay 1 or 2 installments from his pocket. The PILs challenge the legality of these schemes. The questions have been raised pertaining to accountability of jewellers towards buyers in case of liquidation.

Curbing fraudulent money circulation schemes has been identified as one of the priorities of SEBI. To attain this objective, the regulator is said to be fortifying co-ordination and co-operation with other regulators such as RBI. Timely action by a regulator is imperative to preservation of investors' interest.

PersonalFN is of the view that, investing in gold linked money pooling schemes is risky. If you are issued bonds (linked to gold price moment) against your investments; they suffer from risk of default. Moreover, if you are required to buy gold once you have paid all your installments, it is unlikely that you may buy gold bars or gold coins. Buying jewellery involves payment of making changes which may be as high as 25%-30% and erase gains you might have made by availing discounts.

Therefore, PersonalFN is of the view that investors should be wary of such schemes. Yes, gold is an important asset to own and you should hold 10%-15% of your investment portfolio in gold. PersonalFN believes that, while investing in gold, you should stay with investment products that are strictly regulated and floated by a trusted promoter. Gold ETFs and gold fund of fund schemes should be preferred. If you are buying gold in physical form, you shouldn't forget to ensure purity of gold and check BIS hallmark. Getting lured by gold linked money pooling schemes is dangerous. Even though there are likely chances that SEBI may take tough action against fraudulent gold linked money pooling schemes; the risk remains.

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ashokkumarsethi@gmail.com Feb 15, 2014 This article is alarming and in learning process. The RBI restrictions would help a lot of people, who are ignorant about the legacy of the schemes offered by the jewelers. Those people who are worried about the marriages of their wards prefer such schemes really fall a prey to the tactics of the jewelers. My observation reveals that the domestic housewives and their daughters mainly become attracted with this chain. Hence, it is quite clear that the head of the family would never prefer such scheme but the housewives sometimes join such group of investors in collision with the other female members of the family. It would be more appropriate to educate the female gender for avoiding themselves to be grabbed by the undesired elements. It has also been seen that some of the jewelers sell their ready made jewels to such ladies just paying first installment of the scheme and compel them to go on paying month to month for the schemes. Some of the reputed jewelers display advertisements for luring and most of other petty jewelers do it locally with their contacts. It will be a very difficult task to ensure curb and restrictions on all of them. The RBI and other forcing agencies will have to look forward for the ways and means for strict enforcement.

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