What is it?
Reliance My Gold Plan (RMGP) is a new product launched by Reliance Money Precious Metals Pvt. Ltd, a Reliance Capital company, and World Gold Council that allows investors to buy physical gold in paper form without using a demat account, which is normally required to invest in gold exchange-traded funds (ETFs), another way to buy gold in paper form.
How does it work?
You have to invest a predetermined amount every month. The minimum tenor is one year and the maximum 15. Gold will be bought through a daily averaging process. So from the day your investment starts, gold will be bought in 20 equal lots (total spend equals your instalment) spread across the next 20 business days and the accumulated grams will be credited to your account.
The gold grams will be 24 carat and of 995 fineness. You can start with a monthly subscription of Rs.1,000 and thereafter in multiples of Rs.500. Though you can’t change your monthly subscription over the tenor of the product, you can put in additional amounts starting with a minimum of Rs.1,000.
There is a lock-in period of six months after which you can claim gold in the form of coins or jewellery, but premature termination charges may apply. Also, you can make this transaction online and payment can be done only through ECS or direct debit.
To start the investment, you need to provide a passport photograph, identity and address proofs. Permanent account number card is not required unless the monthly subscription is above Rs.50,000 or the accumulated sum in your account exceeds Rs.5 lakh.
How does it compare with existing options?
Jeweller schemes: Most jewellers offer monthly subscription schemes, where they typically ask you to pay 11 monthly instalments and add the 12th themselves. Here, you don’t get the advantage of daily cost averaging and in terms of counter-party risk, it’s not as transparent as RMGP. In case of RMGP, gold accumulated in your account is kept with Lemuire Secure Logistics Pvt. Ltd, a company that provides integrated logistics services for valuable cargo, and IDBI Trusteeship Services Ltd have been appointed as the security trustee to act on behalf of the customers in case the company is in financial trouble.
Gold ETFs: ETFs are better in terms of charges and redemption.
The one advantage RMGP has over gold ETFs is that you don’t need a demat account. But then there are gold fund of funds (FoFs) which also offer this convenience. Gold ETFs and FoFs have an expense ratio as low as 1%.
Moreover, in case of gold ETFs and FoFs you can invest and redeem cash for monthly amounts as low as Rs.100; in some cases, you can take physical delivery of gold. This option of redeeming in cash is not available with RMGP.
In terms of security and transparency, FoFs and ETFs also provide the benefit of trustees and custodians for safe keeping.