Here is how you can earn an extra 3.25-5% returns on your gold holdings. Lease them out.
Fintechs like Gullak and SafeGold are promising to offer good returns if you lease the gold through them to jewellers. For instance, Gullak’s Gold+ scheme promises annual returns of up to 16% via leasing. But that depends on gold appreciating 11% annually. You earn an extra 5% via leasing. Of course, if gold doesn’t appreciate at the rate forecast by Gullak, your net earnings will be lower as well.
The process of gold leasing is simple. Users of these platforms can lease their gold holdings to jewellers who have partnered with these platforms. The gold holdings referred to here is digital gold bought on the platform and not physical metal. Leasing refers to a owner giving the gold holdings to a lessee to use for a fixed term, in return for regular payments.
The user can pledge 0.5gm to 250gm digital gold to a jeweller— who is the lessee in this case. The platform shows listings of different jewellers with details of lease term, which can range from 45 days to six months, and the yield offered. The jewellers listed are mainly small and medium entities and Gullak claims that these are onboarded by gold refinery and bullion company Augmont after verifying their financial track record, business performance and credit worthiness.
The lease (or interest) is calculated daily and deposited every month in the user’s account in grams of gold. There is usually no lock-in involved in the lease term and a lease broken prematurely gets interest earned till the date of lease termination.
Risks involved
The biggest risk with gold leasing is that it is unregulated. This means you do not have any grievance redressal option in case of losses. The platforms claim they obtain bank or corporate guarantee from the jewellers to cover default risk. While SafeGold takes 100-109% of the gold value as guarantee, Gullak claims the guarantee is equal to the maximum leasing quantity allowed to a jeweller. A guarantee is typically exercised when the jeweller does not pay the lease, shuts shop or fails to return the gold after the lease ends. However, a bank guarantee doesn’t ensure full and timely recovery of losses.
So, what happens if the price of gold rises suddenly and the value of leased gold exceeds the guarantee amount?
Safegold claims that jeweller are mandated to regularly top-up the collateral on the basis of the change in gold prices. That said, if gold prices rise suddenly, it is possible that the jeweller defaults on repayment and the user’s recovery is limited to the amount covered by the guarantee. Safegold, in its risk declaration, has stated that “enforcing a bank guarantee can take time and recovery may not be within the contracted time frame.” It adds “the Company does not guarantee your capital or any returns and there is no recourse available on the Company to you.”
Gullak has made no such risk declarations upfront on their platform.
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Published: 26 Dec 2023, 12:38 AM IST