Do gold jewellery schemes benefit buyers?

Gold is one of the most commodities in an an average Indian's life, especially when it comes to festivals or weddings. So naturally, the escalating prices are a cause for great concern for many Indian families. Gold prices have surged to such astronomical levels buying gold has become next to impossible for families with modest income.

Perceiving this difficulty and owing to the drop in sales, various jewelers have come up with indigenous schemes to lure buyers.
Schemes like buying gold in investments where you have to pay only just 11 out of 12 installments, the last installment will be footed by the jeweler itself. You'll own the gold jewelry after the completion of the tenure.
Example
Mrs. Sunita from Delhi decided to buy 20 grams gold as an investment, but realised she lacked sufficient funds. A jeweler offered a scheme under which she could buy gold jewelry after one year at the prevailing market rate after paying 12 monthly installments. The jeweler also offered to pay the 12^th installment after she had completed the 11th installment.
That means for jewelry worth Rs 60000, she had to pay Rs 55000 in 11 months, and Rs 5000 would be borne by the jeweler. She thought it was a good option. She sought to buy gold as an investment and under this scheme she would make both and investment and get herself an ornament.

Did the buyer benefit from this scheme?
The only benefit that a buyer gets is purchasing gold in installments. But from a buyer's point of view, this type of scheme has more to lose than to gain.

Here's why one should not to buy gold under the jewelry scheme
Let's examine the limitations of buying gold jewelry through this scheme:
-          The installment paid, can be used only to buy the jewelry, and it cannot be redeemed against gold biscuit or coins. The jewelry also carries the making charges, and its purity is lesser than the biscuit or coin. So if we compare 10 grams gold biscuit to gold jewelry, then buyer would gain if he chooses the gold biscuit. Let's check the comparison:

Details	Gold Jewelry	Gold Biscuit
Quantity	10 Grams	10 Grams
Purity	22 K	24 K
Making Charges	Up to Rs 30/Gram	Nil
Resale Value	Lower due to impurity	Full Return Value

-          The buyer is under an obligation to the seller to purchase the gold at the prevailing market rate. If at the time of booking jewelry, the gold rate is Rs 2800/gram but after the completion of installments, the rate increased to Rs 3000/grams, then buyer has to pay Rs 2000 extra for every 10 grams due to change in price of gold.
-          If the main purpose of a buyer is to invest, then buying jewellery is not a wise choice. The jewelry is not made of 24 carat gold, and it also carries some making charges, so the return value of jewellery would be much less when compared to gold coin, biscuit or bars.

Other attractive options to buy gold in installments
The buyers have many other options to buy gold at a cheaper cost and at a better quality. Some of the options include:
-          If the buyer wants to buy gold after 12 months under the installment pattern, then it would be a better option if he buys Gold ETF in the stock market every month and averages out the inconsistency. He can also buy it in E-Gold format (National spot exchange) where he can buy as low as 1 gram gold. After 12 months, he can sell the gold in electronic form and buy the gold jewellery from the proceedings, or if he wants to carry it longer then he can keep it in the DEMAT A/c.
-          If the buyer wants to invest in a coin or bar, then he also has the option to put the money every month in a recurring deposit account for 12 months and earn interest on the money and buy gold with the maturity proceedings.
The basic flaw in the gold jewelry scheme is that jewelers not only earn interest on the buyer's installment but also sell the jewelry after earning a handsome margin. For 20 grams gold jewelry, he earns Rs 600 making charge and sells 22 carat gold at rate of 24 carat gold. So he earns approx 8% extra by selling gold of 22 carat purity.
For jewelers, this scheme is a win-win situation as he gets the chance to sell his product, and at the same time he earns interest on the customer's installment whereas buyers, who cannot distinguish whether they are buying gold as jewellery or as an investment, are always set to lose out in this type of deal.