Gold in Hand doesn't Mean Money in Wallet

KOCHI: “I had 20 grams of gold jewellery in my hand worth more than `50,000. But when I was in urgent need of an equal amount of money, I had to borrow nearly one third from from my friend,” recalls Kochi native K Ajayakumar. His problem, one faced by many, is that while the gold in your hand could be worth a bucketload of moolah, turning it into liquid cash of equal worth is nigh impossible.

Ajayakumar got only a fraction when he pledged it - slightly above `36,000. Selling the gold proved impossible because he did not have a receipt.

Almost every Indian household possesses at least a gram of the yellow metal. Mostly as investment and because common tradition holds that gold is the most easily liquidable asset. While true to some extent, oftentimes, gold is only a way to secure loans in an emergency. As of now, there are no options are available in the country to get even close to the market rate for your gold jewellery.

One can either opt for a gold loan or an outright sale to a jeweller, but come with caveats. In the former option, the maximum you can get is a mere 75 per cent of the value. In the latter, your gold is devalued by 6 to 10 per cent, forgone to wastage and other charges. If provenance is uncertain, as in the case of heirlooms, it is possible for a desperate seller to get cheated.

While the government’s gold monetisation schemes offer the possibility of a new form of lending against gold - against the bank receipt of the deposited gold, they are yet to gain traction.

“If the monetisation-scheme picks up, banks and NBFC will provide loans against bank receipts of the gold deposits. But the system has not fallen in place yet,” said P R Somasundaram, MD-India, World Gold Council.

While the selling gold is the closest option to realising maximum value, there are several glitches. For one thing, many jewellers decline to buy jewellery without receipts. For another, if you are not careful with assessing the purity of your gold, you can be cheated.

“The making and wastage amount, plus one per cent, is reduced from the market rate. Since 2001, hallmarking came into existence, but many jewellers fail to comply with it. If the jewellery is hallmarked we take it back,” said B Govindan, Chairman, Bhima Jewellers on how gold is bought.

Gold loan alternatives

If in dire need of money, and you are unwilling to lose your gold, it makes sense to take a personal loan since interest rates are similar

Gold loan interest

11% - 26%

 Personal loan interest 8.5% - 24%