The Negatives of the Reliance My Gold Plan

35 comments Written on April 30th, 2014 by
Categories: Gold

There’s a new investment idea in town. The Reliance My Gold Plan allows you to buy gold through “Daily averaging”, by taking a (minimum of) Rs. 1,000 from you every month, splitting into 20 installments, and buying one per day for 20 days.

At the end of the contract term, you can choose to take the gold as coins, or send it directly to a jeweller of your choice (to be converted into ornaments).

This has reached a feverish pitch on advisory channels, with people pushing the product aggressively. Even FundsIndia which tells you this product is better than those schemes by jewellers.

But at Capital Mind, it’s not about the positives. Every one will tell you about the positives. You can get the positives from anywhere. Here’s the “negatives” of the scheme, seen from the lens of someone who isn’t interested in the scheme as an advisor or anything else.

I’m going to look at the scheme as if you could invest in some other mechanism - through a Gold ETF or otherwise - and then use the money at the end of the term to buy gold directly.

It’s expensive Gold!

Reliance’s Gold Price is vastly different from the price that Gold is available at elsewhere, it seems. Here’s the Reliance Plan today:

image

 

Here’s the Mumbai Gold Price in the same deal:

image

(Source: MoneyControl)

You pay 8% more!

If you invested that money, the extra 8% will compound and give you even more returns.

Note: Their excuse is that this Mumbai price doesn’t include the cost of storage or entry taxes and what not. Most Gold ETFs include that cost, and they charge less than 1.5% as fees per year, so it really doesn’t justify an 8% markup.

And They Charge You 1.5% Additionally

Reliance charges you 1.5% higher for each purchase. So apart from the above markup you have to pay the 1.5%.

To be fair, this applies only on the purchased amount. In a mutual fund or ETF, you pay an annual maintenance fee on the whole amount of money. To give you an example, if I have 100 grams of gold at Rs. 3,000 per gram in year 1, and I invest another Rs. 10,000 then my incremental charge is 1.5% of the Rs. 10,000 which is Rs. 150; this as a percentage of the Rs. 300,000 is a very tiny 0.05% (per month). 

Still, the savings are tiny compared to the fact that they charge you an 8% markup on the gold price directly.

Oh, if you attempt to exit early, there’s a 2.5% charge on what you didn’t invest.

There are EVEN more charges

At the end, you would think they just hand you the gold. But no.

  • Pay VAT/CST on the Gold which you buy.
  • Then pay coin making charges if you want it in coins. (Small amount here, but about 1% on 5 grams)
  • Pay Delivery charges.

If you don’t want coins, but will choose to make jewellery instead, you get the gold sent to a jeweller. Now,

  • The jeweller buys at lower than market (typically 8% or so, lower than market prices, as a bid-ask spread)
  • He charges you making charges and wastage, which can add up to another 10% of the total cost.

You might say you will incur these costs when buying jewellery anyway. That is true, but:

You can’t choose ANY jeweller

You can only choose the jewellers empanelled with Reliance. This sucks. Because those jewellers will know you have NO CHOICE.

That means they can put high making charges and high wastage and you can’t complain. They can buy the gold from you at a low-ball price and you don’t have a choice.

This lock-in is a huge negative. It basically puts you at someone else’s mercy when it’s your own investment. It’s better to have your money in your pocket and then you can show them the finger if they quote too high a price.

It might violate SEBI norms as an investment scheme, or a forward contract

They buy Gold and the gold is kept in your name with a custodian. They effectively buy it today, and give it to you one year or so later. You pay now, and take delivery one year later.

They have not received any approvals from RBI or SEBI for this product, and claim that it does not come under the SEBI or RBI zone of regulation. However, we are all smart people and understand that this simply means they haven’t got RBI or SEBI registration for such a product. Even NSEL claimed that it didn’t need to get FMC approval (which it didn’t as it was explicitly exempt) and look what happened there!

I am not saying there is a scam in this, but the point is that regulators are very very tough. If RBI or SEBI decides to regulate this business, they would ask very tough questions. In the absence of their regulation any investor must ask for:

  • Audit reports on stock reconciliation with accounts on a monthly/quarterly basis
  • Statement stating that the gold held by the custodian and trustees are not hypothecated with any other party and not “lent out” under any circumstances.
  • Regular stock purity check reports.

In the absence of this, I would be very skeptical of investing in such a plan.

The Good Part: You Can Upload KYC Online

You can actually upload your photo and KYC docs online and get to purchase this product. This is a good feature and I hope this spreads to other institutions as well!

Verdict

There is no verdict. I’m just highlighting the bad parts of the plan (and one good point about online KYC). It makes no sense to me as a financial investor when ETFs do the same thing for so much cheaper.

But for someone who wants to buy jewellery the opinion might be different. While I don’t like the lock-ins, and the high charges, people often face even higher charges going with jewellers directly. I don’t like jewellery and luckily don’t have to bother about it, so it hardly affects my life. But if you asked me, I’d say it makes more sense to buy a Gold ETF and use the proceeds at a later date to buy your jewellery. 

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About the Author:
http://www.capitalmind.in
The man behind Capital Mind. Deepak is a co-founder at MarketVision, a financial knowledge company. Deepak also provides data research and consulting services, and now lives in Bangalore. Connect with him at deepakshenoy@gmail.com.

35 comments “The Negatives of the Reliance My Gold Plan”

thanks for this article. Sharing it now with my gruhinis as it will definitely help them take an informed decision

cool… !
glad to see good things come out of capmind pre. !

Can you please review “MCX Gold petal” which also promise physical delivery?
http://www.mcxindia.com/Uploads/Products/260/Gold%20Petal.pdf

Can you please review “MCX Gold Petal” which promises physical delivery?

http://www.mcxindia.com/Uploads/Products/260/Gold%20Petal.pdf

Did you say “Reliance”? :) Staying as far as possible from any Reliance name is the safest mantra !

Excellent article and all the negatives are loud and clear …

Nice Article Deepak.in this Commercial world every one highlights only Positive side of scheme…it can not climbed as scam But we call it as Business…. For me the Best options for Bulk investors would to buy Small Gold Bars in whole sale market with help of any friends who are in jeweller related business…Even Big Jewelers also charges Premium rates
and easy to liquidity also…

Deepak,

Thanks for the write-up and the link to our article.

Quick question – where can you buy gold at the price (Rs 2958) that you have quote? I just checked Tanishq’s website for gold coin price. A ten gram 24carat coin is at Rs 34170 right now, working out to Rs 3417 per gram, higher than Reliance’s cost (and probably on par after taking into account RMGP’s other charges).

thanks,

Srikanth

My point was very clear Srikanth – that if you’re buying gold that is not in your custody then the ETF is better. If you want to buy coins, you can buy them from jewellers (most of whom will give you a better rate than the Titans or the banks, and a guarantee to buy back the gold which banks don’t give you , neither does Reliance)

Most of these products don’t come online, but here’s two links at less than 32K:
http://www.coinbazaar.in/10-grams/5-10-grams-24-kt-gold-995-purity.html
http://www.coinbazaar.in/10-grams/74-10-gram-24kt-gold-coin-999-purity.html

I don’t know about their particular purity specs or stuff like that. But I’m just talking about the price. Taxes + loading etc. don’t add up to 8% honestly. And if you have to pay another bid-ask spread at thejeweller it’s another 8% off (for conversion into jewellery).

Deepak,

You’ve got to compare apples to apples. If you are comparing two prices of gold coins, please do so with coins you can buy. I’m glad you took the time to find a gold coin cheaper than a popular online jeweller. So, go ahead and use that price and not the exchange gold price. If you do so, the difference will come to 0.6% and not a bold, highlightable 8%, right?

The least you can do is correct that part of your article.

thanks,

Srikanth

Oh wait. For the reliance gold coin, you will pay
- Rs. 3207 per gram
- 1.5% extra to Reliance, which is about Rs. 50 per gram
- VAT/Octroi – we don’t know how much right now but assume another Rs. 50 per gram. (1.1% VAT, there are cesses, I don’t know about octroi)
- Coin charges of Rs. 450 for 10 grams

The 10 gram cost, is around 33,500 to 34,000. This coin I mentioned was 31,900 net of all these taxes mentioned above.

The difference between 34,000 and 31900 is 6%.

What I mentioend in my post was that the differential was 8%, but taxes etc. should take away about 1.5%. Which is close to exactly right according to these calcs. So no need to change my article. (Happy to change anything that I’m sure is wrong)

And we have ZERO idea what the Reliance coin will cost today in total. They don’t tell you. You will only find out if you buy today and convert. Because the taxes etc. are unknown. At least with jewellers you can get the exact cost!

Apples to oranges indeed – they’re all fruits and comparable, like a recent Dilbert cartoon said :)

Deepak,

Comparing exchange gold price to retail gold coin price is just wrong. If you want to retrofit a different logic to get the numbers closer, and not change your write-up, fine…

Srikanth

Sorry but I think I’ve explained here how the difference is 6% after the charges (before which it’s 8%). I’ve written clearly that taxes etc. will eat up 1.5%. Either way you look at it, the differential is 6% or more, and that remains substantially high!

Their 8% is the price of the gold, and doesn’t include VAT etc. The Mumbai gold price is what is traded so we can benchmark against it, subtracting 1.5% to 2% as necessary, for charges for coins. For jewellery the equation gets significantly worse, because you pay higher to Reliance, and then you pay higher to the jeweller as his bid-ask spread. That is double whammy.

Please note that the coin charge is Rs 200 for 10 grams (its 450 for 50 grams):

FAQ 23 here:

http://www.reliancemgp.com/pdfs/MGP_FAQs_English.pdf

Deepak,

On the other points – at FundsIndia, we decided to offer this to our customers after having a lot of interactions with senior folks from RMGP and after internal discussions from different perspectives. The reasons that influenced our decision (apart from the business angle) are:

1. There is a real demand for this product – buying physical gold. Gold ETF and Gold savings funds, already on offer on our platform, have their subscribers, but our customers used to ask for physical gold option since the eGold days.

2. This is a better and more convenient option than going to jewellers’ schemes which are costlier. Even now, the predominant bulk of money in this market is going to the jewellers.

So, we believe we are offering a better product in class of products that has real demand in the market. Hence it’s on our platform.

RMGP has an exhaustive FAQ that addresses many questions, including the one on regulations:

http://www.reliancemgp.com/pdfs/MGP_FAQs_English.pdf

thanks,

Srikanth

Right now, the best way to buy physical gold is to travel out of the country and bring it back in the part of you where the sun doesn’t shine. You will save money and get to take a phoren trip also. Win win. Since import duties on gold are ethically wrong, I see no reason why this shouldn’t be encouraged. Black market, yo. Why bother with an investment plan (born out of market constraints that shouldn’t exist) and all that stuff.

Haha. I like this man. But some people have tried stunts and it’s gone horribly, horribly wrong…

  • http://timesofindia.indiatimes.com/city/delhi/Doctors-find-12-gold-biscuits-in-mans-gut/articleshow/33875658.cms
  • If it was a developed market, that guy would sue Chidambaram for having to undertake a roundabout method of doing something that should be allowed based on individual liberty. He would win the case, be paid millions by GoI and GoI would learn its lesson, be put in its place and learn forever that they cannot pass arbitrary laws infringing on people’s liberties.

    LOL! Man we have some ways to go :)

    Gold Coins are always priced higher than price of Gold – saw the same even in Dubai / Singapore. Also unlike in Dubai where the price of Gold in the retail store (and heck, every store) is the same as its published say in Kaleej Times / Gulf News, I have not seen uniformity even in the daily gold price between most Jewellery shops. Prices denoted in MoneyControl I assume is based on MCX Gold or something else since no where do prices match.

    Deepak,

    I think you have got the facts about the product completely wrong. Though would not blame you since this is the case with almost all Indians since the gold industry is dominated by the unorganized sector i.e. local jewelers.

    A few facts about My Gold Plan:

    • Reliance My Gold Plan is a savings plan which flashes a PAN India Price Landed Price (pre-tax) whereas others flashes a price which is not the landed Cost and has very specific delivery terms. This is also a necessity given that tax structures vary across different states of the country.

    • Reliance My Gold Plan is not a financial product and hence should not be confused with likes of Gold ETF where in the primary goal is to mirror the returns of gold. Products like My Gold Plan provide you a tool to buy physical gold in a systematic and disciplined manner.

    • The price mentioned by you in the article is a benchmark price which may vary from a publisher to publisher since he has no intention to honor the trade. The facts on the ground are completely different. The benchmark price is just a rough indicative price computed mainly through applying an algorithm considering average price of gold USD per ounce and average Re/USD rate. The market rate in contrast is determined by the supply demand trends, premium in the international markets, fluctuation in the exchange rate, etc…. Just for your information the premium in gold prices is at an all time high since the RBI move to curb gold imports. Therefore, the correct comparison should be benchmark the plan with prices prevailing with leading jewelers.

    • Further, the price of a 1 gram gold coin will be much higher than that of an 10 gram coin. Hence dividing 10 gram price by a factor of 10 is not appropriate to arrive at a 1 gram gold coin price.

    • Delivery is available at PAN India and it also has an secured home delivery option.

    • Delivery is available in denominations starting from 0.5 gram which no one else offers.

    • There is a Zero Default Risk structure wherein an Independent Trustee (IDBI Trusteeship Services Ltd.) monitors the daily activities right from allocation of gold grams to customers every day, to purchase and storage of gold with specialist vaulting partner, to dispatch of the physical gold to the customer at the end of the tenure. This is done to protect the interest of the customer and ensure that he gets delivery of the gold in any event. As an financial advisor, I am sure you are aware of the credit risk that the customer carries when it comes to local jewelers. We are the first to introduce such a robust structure and an monitoring mechanism in place to protect the customers interest. This feature will definitely gain relevant importance (and not only the price) once we have a large jeweler default.

    • The Indian customer has been a victim of under–carratage for ages. The below appended link will provide you insights of the real issue. Reliance My Gold Plan takes complete responsibility for the purity of the gold provided. (link appended)

    http://m.financialexpress.com/news/gold-hallmarking-fraud-jewellers-liable/911576/​

    • Reliance My Gold Plan has taken relevant approvals/opinions to ensure that they are are in no default from an regulatory perspective.

    Deepak, we are the first organized player in the gold accumulation space and are providing complete transparency to the distributors, who market the product and also to the customers thereby converting their dreams of owning physical gold into reality.

    We have received applications from across India and have been educating the customers on the tricks played by the local jewelers. Customers have really seen the positive effect of averaging and accessibility which enables them to start saving from Rs. 1000/- per month which translated to Rs. 50 per day.

    Though we believe we do not compete with the gold ETFs and other financial products since we market ourselves to every Indian who wants to realize his dream of owning physical gold for a future date. Yet, would leave you with a question, Gold ETFs claim to have tracking error in the range of 2% but is it true?. As per us the tracking error is around 10%-12%. Further, would request you to highlight the associated charges with owning a gold ETF i.e demat charges (Annual and transaction), brokerage, Annuall Management charges of the funds.

    Feel free to revert for more clarifications.

    Thanks
    Team RMGP

    Let me respond to each point.

    You’ve ignored the entire argument about the price being way higher than we can get elsewhere. In my conversation with Srikanth (Fundsindia) I have mentioned how your price is at least 5-6% higher than the landed cost including all the taxes, of even online jewellers (who are more expensive than those offline) This is additional costs considering everything. If you can refute that please do so. But please don’t tell us the price isn’t comparable. It is comparable, and I’ve compared it, and it’s obvious the RGMP price is way higher.

    Please don’t confuse the matter by saying this is not a financial product. It’s as good as a financial product and I compare it to the ETF for my post. Any product where I buy something that I can’t immediately use is a forward contract of some sort and it has a financial component to it of locking in the price today for my use tomorrow. This is a financial product until actual delivery has taken place. Even the FMC specifies that SPOT contracts – are only if you get delivery within 11 days. Technically you can be regulated by the FMC but you have made smart choices to ensure a custodian lock-in which you do not allow people to use what the custodian holds on their behalf. But doing that is good for regulators (or to escape regulation). For every other person, it is a financial product until the gold is handed over.

    Honouring the trade: Please understand that we don’t trust Reliance to honour the trade either. You have no regulators on this scheme. I would largely have more faith in a local jeweller who I can see, rather than trust a name like Reliance which has no way for me to complain. Trust wise you are the same as any local jeweller, though if you had a regulator and independent ombudsman/remedial judge we might be able to trust you better.

    There is no default risk structure in place unless you place the full audit reports in the public domain (as I have mentioned in my post) and your trustee/custodian is guaranteeing that under no circumstances will there be an external or contingent liability on all gold in the vault. This means no one can borrow with that gold as collateral. This means that gold (or certificates against that gold) cannot be lent out. No lien of any sort can be created. Without such regular affidavits and absolute transparency including weekly/monthly audited reports on how much gold is there in your vault (which usually regulators would ask for) there is no default mitigation.

    Under-carratage: What is the guarantee that your products are not under-carrated? If a problem is found in the product what is the remedy? SHould we go to court or will you immediately provide a replacement coin at no further cost? BiS etc is all fine, but in the end someone will test what they receive. Where is this addressed in your FAQ? Quality concerns are different from remedies in case you fail in delivery.

    I have talked about the charges with ETFs, which is 1.5% (typical). Tracking errors of 10%-12% are a little extreme, coming from a company that has a Gold ETF of their own. Yes, in about 6 to 7 years, with the 1.5% per year fee, it will become 10%, adn that’s the risk one has to take.

    Note please that I’m not mentioning any positives. That is left for your marketing team and for distributors to highlight. I only focus on the negatives because they are important.

    There is one reason why I really think that Reliance MGP is a great plan.
    Based on the comparison here:
    http://www.reliancemgp.com/comparison-with-prevailing-products.aspx

    The table says that MGP is based on “methodology” whereas other plans do not have any methodology whatsoever. That’s a slam dunk right there. I like plans that have methodology over those without. Makes me feel warm and safe at night.

    Deepak

    Not sure where are you getting your prices from. With respect to your point of online jewelers, today’s (2nd May 2014) price at http://tanishq.co.in/shop-online for 24K gold coin of 1 gram is Rs. 3,433/- (exclusive of tax), whereas the price of Reliance My Gold Plan for today is Rs. 3,186.16. Even after adding the 1.5% admin charge, the R-MGP price for today comes to Rs. 3,233.95/-, which is lesser than Tanishq by almost Rs. 200/-. This argument holds true for other online jewelers also.

    Reiterating about benchmark rates, would a CNBC sell you INR/USD at the flashed rate or for that matter any bank. These are indicative rate and if you want to draw a comparison basis that, you are free to do so.

    Reliance My Gold Plan is not a financial product and not a forward contract. Customers have the flexibility to redeem their accumulated gold grams the very next day of subscribing to the plan. There is no lock-in period whatsoever. Our product works on the believe of savings/accumulation and we don’t commit on any returns/views on prices of gold. Hence you at will may call it a financial product but for us its a saving product and our target audience is largely different from people who invest in Gold ETF’s. Just for clarity we have taken relevant approvals/opinions on the positioning of the product hence there may be no confusion with respect to regulatory default/issue.

    Deepak, you may personally not believe in Reliance as a brand but don’t generalize your view. We have reputed partners such as World Gold Council as our marketing associate in addition to likes of IDBI Trustees to ensure zero default risk from a customer’s point of view. You may feel free to have adverse opinions on the other two brands too. In general, we are a company that is committed to change the way people in India have been saving in gold for ages. It may have people such as you who would prefer a local jeweler over the likes of Reliance but fortunately the percentage is less. We have been loved by lacs of customers post our launch 18 months back and we continue to support them to the fullest.

    Not publishing reports/annual accounts does not tantamount to failure of procedure. Associating with well know names like IDBI, WGC,etc to manage the process is a good enough indication to comfort the customers (but not you).

    The customer has absolute right to the gold stored on their behalf. Neither can this gold be used as collateral to borrow nor can it be lent to anybody.​

    Reliance takes complete responsibility for the purity of the gold coin delivered and we have imported technology to ensure that purity is not compromised. We will replace the coin in case of dispute subject to there is no evidence of willful misconduct or tampering.

    When it comes to ETF, please compare the traded price of the ETFs with the landed price of the gold and your concern shall be answered. I am not only talking about the fees.

    Thanks
    Team RMGP

    Team RMGP, please see above (the response to Fundsindia) for the calculation. After you add VAT, making charges etc. a gold coin on 30 April (compared both for the same date) on RGMP compared to the two links mentioned there shows 6% difference.

    Forget that. Go to this link at Homeshop18.
    http://www.homeshop18.com/gold-coin-sunrise-jewellers/jewellery/gold-jewellery/product:31830677/cid:15515/?pos=1

    (Just for today, May 2, which is your price comparison date too)

    You are getting a 2 gm coin today (May 2) at Rs. 6300 with their coupon code. This is 999 fineness. Reliance offers only 995. This price includes VAT and making charges and all that. your comparable cost, according to your own site will be approximately
    3186x2g = 6372
    +1.5% premium = 6467
    +VAT/Octroi of 1% say = 6530
    + making charges of 120 = 6650

    Versus 6300.

    Can you see the 5% difference? (And this is for your product of 995 fine, versus theirs of 999 fine. So real difference is more like 6% to 8%)

    About flashed rates – every one understands there is a 1% difference in real rates. That’s fine. But every one also understands that a 6% markup is too much!

    When you say you have taken relevant approvals, from whom exactly? You aren’t regulated by the RBI/SEBI as per your admission. CST/VAT approvals don’t count. You don’t have any approval with respect to regulation, and we are expected to believe in your self-regulation. Which is fine, but please don’t try to say it’s approved or regulated, because it’s not.

    Uhm, I don’t believe in ANYONE as a brand. WE have seen failures of brands liek Satyam and Lehman. Your own brand has taken a slight beating in terms of its own share prices. Even NSEL was backed by a big brand (FT). So please forgive me if I don’t trust your brand. Or IDBI’s.

    When you are in a non regulatory setup, please be sure to publish not just annual, but monthly and quarterly accounts. Because we find it difficult to trust, and therefore need audited information to cross check.

    When you say the gold can’t be used as collateral nor can it be lent, is this placed in a written form anywhere? I couldn’t find it in your application form, or in your T&C. Can you place your trusteeship agreement (sans fee numbers) into the public domain? Thanks.

    Also about the replacement – thanks for the clarification. Can you put this in your T&C? This would be great for customers to know!

    ETF and fees: We’ve had this argument over and over, but we’re skipping the basic point that your cost differential is too large even when you account for taxes and fees (landed costs).

    Also I must thank you for participating! It is not often that a product vendor participates in online discussion. Please note that I have nothing against your or your company, but only highlighting the negatives as being different from other sites which tend to focus on the positives.

    “Reliance My Gold Plan is not a financial product and hence should not be confused with likes of Gold ETF”.

    Team RMGP:

    We wouldn’t have compared it with alternate financial products (Gold ETF), had it come from Amazon or Flipkart. What other non-financial products do you deal with? Would you (as a paid financial adviser, not as his tax adviser) ever recommed your client to buy physical gold as a investment option?

    I really don’t understand why financial industry has to come up with such convoluted schemes for the simple issue of buying gold? Someone should educate them that there are things like ETF and futures for exactly this purpose and most people have figured out that they are efficient and reliable ways to own gold.

    1) Why shouldn’t I just buy it directly from a bank? Averaging you say? Ok, but I can average manually and if my quantum is too low I can put it into a gold etf and convert into physical when I have accumulated enough (and only if I really, really want the physical which really isn’t necessary if you think about it). If tracking error is a problem, then why doesn’t Reliance ask their ETF division to fix the tracking error? There is no reason why the ETF should have a tracking error. I don’t know why financial industry has to come up with stupid terms like SIP/SWP, etc for simple averaging over time which is a natural thing.

    2) Don’t I lose interest if I lock in money and get the product at the end of the year. Where is the opportunity cost going: my interest of 8%/2 (annual rate if invested in short term debt roughly averaged by two to reflect investment through the year) for a 1 year tenure, and a lot more interest if it is of a longer tenure?

    3) Reliance must expect everyone to be daft to believe that there is no risk if they are the ones fixing the daily price. Even the London metal price fixing is coming into question now and is alleged to be a huge scandal. The sceptic in me will allege that someone at Reliance looked at that scandal, figured it out and decided to repeat it at Reliance (disclaimer: unsubstantiated allegation). Regardless, why doesn’t Reliance use the market determined rate for its daily price? There is a clear conflict of interest here. The whole plan collapses on this single point that Reliance will release a daily price. How can you claim credibility when the very notion of fixing the price of something unilaterally is a dubious idea?

    Its about time the financial industry figured out that designing convoluted plans (especially for simple things) with commissions is passe. Entire world outsources to India because services are cheaper here, but our financial industry works on making every financial service more expensive in India than it is outside India (buying gold outside India would not require a convoluted plan like this, nor the high expenses of this plan, that much one can be sure of). I suppose this is what you get when you have too many idle sub-standard MBAs with nothing better to do.

    Deepak,

    First of all let me congratulate you for writing such bold posts in an era of convoluted indirect financial gains.
    Though i do not agree with you on the claims/comparisions of the exact charges, I do agree with the fact that it is a unusual product which surprisingly does not come under preview of SEBI or RBI. I had posted a similar article reflecting similar marketing by Reliance for another product:

    http://onlinemf.in/2008/07/21/why-not-to-invest-in-reliance-sipinsure-plan/

    I must add that Reliance has always had such innovative ways of marketing though.

    Thanks,
    OnlineMF.

    The price of 24 carat gold at P N Gadgil and Sons, a reputabled bricks and mortar jeweller in Mumbai and Pune is Rs 3040 per gm on May 03 2014, The same on RGMP website is Rs 3186.16.
    So the gold on RGMP is nearly 5% expensive than a bricks and mortar jeweller, and this is not including any additional charges.

    So what Deepak says makes sense.

    @ Kaka: Your statement “convert into physical when I have accumulated enough (and only if I really, really want the physical which really isn’t necessary if you think about it)” is completely baseless.

    Indian households have the largest reserves of physical gold in the world, (estimated at 18,000 tonnes). This clearly says that owning gold is traditionally embedded in our culture since a very long time and is considered auspicious for important milestones like weddings as well as festive occasions.

    I am curious as to how you will “Average Manually”. Which bank/jeweler will let you buy gold for as little as Rs. 50/- per day? Far from letting you do it; they will not even pay attention to you. Whereas, Reliance My Gold Plan insulates the customer from price volatility via the Daily Average Pricing Methodology by offering gold for as little as Rs. 50/- on a daily basis.

    Even jewellers & may have different prices for the same piece/design of jewelry if you were to ask for its price at two or more different jewellery outlets. There is no price uniformity between jewellers. The same is true for banks selling gold coins as well. So Reliance My Gold Plan is completely justified in declaring its price on a daily basis. Bear in mind, the price is uniform PAN India.

    Your comment about the opportunity cost of losing interest is refuted by the fact that you have the flexibility of redeeming your accumulated gold at any time after having subscribed to the plan. There is no lock-in whatsoever. Each and every gold gram allotted to you is backed by physical gold.

    The price of gold in India will differ from that outside India as the import policy and duty structure (currently at 10%) implemented by the Indian authorities is unique only to India and does not exist elsewhere.

    a) “Baseless”? I was not making a claim on what people do today. Its my personal opinion, how does an opinion become baseless?

    a1) And, just because something is part of our culture doesn’t make it good. That is not a sufficient reason to say that something is a good idea.

    a2) Furthermore, we haven’t had the option of buying gold etf or gold futures in our culture until recently either, so to compare options available today with an old habit is incorrect.

    b) Average manually by buying gold etf until i have enough to convert into physical efficiently. That’s one option.

    c) Yeah, daily averaging will give you a smoother short term curve, but the customer still has risk from month to month. Sorry, I just don’t see much use for daily averaging. Its only useful half the time with an upward trending price curve if funds are incrementally deducted (or a lower trending curve if funds are deducted at the start of the month), but is worse if vice versa. I’d say the odds of either are about the same. So, its just a play on customer’s insecurities and I don’t like it. Rs 50 on daily basis is nonsense, it is no better or worse than 1000 Rs lump sum in a month (on average over many months). The risk within a month is not the predominant price risk in a commodity. I will not be worried about price 3 weeks from now, but 6 months, or one year from now.

    And, as I was saying, if you use the futures market, you could do better by insulating a customer from monthly, yearly volatility by pooling funds and hedging with futures. By the way, this is something that you will probably do (at least part of it) as you will be signing up customers for a tenure, so you will know your purchase schedule beforehand.

    d) Oh, the price is uniform pan India. How lovely. This is precisely the kind of irrelevant nonsense that is peddled about, which has no practical use whatsoever. Because, hang on, what difference does it make if the uniform price is higher pan India in comparison to other options (as mentioned by others in previous comments)?

    e) I was not referring to import duties, but the expenses. The expenses would not be as high to buy gold outside India.

    f) Yeah, I was probably wrong about the opportunity cost. But, you are wrong about the reason. The one thing you could have said was wrong, you got the wrong reason for it! Even without the redemption flexibility, because the funds are allocated based on a running price, I can’t claim that the money is idle and could earn interest. But, no soup for you, as you didn’t point this out.

    By the way, 18,000 tonnes is not that much, is it? Its about $1trillion, about 1 year’s GDP, so about one year’s worth of income per capita. Only about $1000 per capita. I suppose temples may have a lot more. We would have a better culture if we had a better investment climate so that some fraction of gold investment went into infrastructure investment (without any coercion, just based on attractiveness of investment). We would all be much richer as a country (in real, tangible terms due to better infrastructure and quality of life) and a prouder culture (rather than staring at insignificant bits of yellow metal that is necessary only to hedge against stupid economic policies).

    Thanks Deepak. I and my relatives are very much convinced not to invest in this plan. We were all planning in to invest in excess of Rs. 20k pm.

    Great work Deepak to share the negatives of this scheme, seldom people do that. We had brought the forms for this scheme but now will not invest.

    Jitesh

    @ Kaka:

    a) People are not saving gold just today. They have been saving & accumulating gold since a long, long time. You might want to check your facts on that.

    b) When trading gold futures, you are playing on the price of gold and not accumulating/saving physical gold, thus negating your argument completely.

    c) Even if you were paying Rs. 1000/- per month to a jeweler, it is most likely that the jeweler actually uses the money for his working capital needs instead of backing your money with actual, physical gold. Thus, there is a major credit risk and default risk that you face.

    d) Reliance My Gold Plan has an independent trustee who protects the customers’ interest along with a host of other features like a dedicated customer service and support team and a reputed service provider who provides monthly statements to customers like clockwork. No jeweler has such a professional and customer-centric setup. Also, the gold offered is 24 Karat, 995 fineness which is independently certified by a BIS (Bureau of Indian Standards) hallmarked assayer. Whether local jewelers offer this, is a matter of conjecture.

    e) With respect to the expenses, you need to understand that the import duty is a major factor that determines the expense/cost of buying gold, apart from other factors such as volatility in exchange rates.