Company Profile: Gullak (Digital Gold Investment App)

KEY TAKEAWAYS

1. Gullak is a digital gold investment platform that allows investors to plan, save, and grow their money through gold investments, offering innovative options like gold leasing.

2. Founded in 2021, Gullak operates under Finterscale Technology Pvt Ltd, with co-founders Manthan Shah, Dilip Jain, and Naimisha Rao, who have diverse experience in product, marketing, growth, and technology.

3. The platform earns revenue through spreads on gold prices, gold leasing, and value-added services, without charging transaction fees or storage costs from investors.

4. Digital gold is currently unregulated in India, posing risks due to the lack of oversight by regulatory bodies like RBI or SEBI, although Gullak claims to secure investments in trusted vaults.

5. Gullak offers various investment options, including Gullak Gold+, which provides an extra 5% gold annually, and allows investments starting as low as Rs 50 per day, but it does not support pledging physical gold.

All that glitters is not gold. I am sure most of you must have heard this proverb, right? And this is certainly true too, after all, the purity of gold is not easy to match, which is exactly what makes it precious. And not to forget, the history, tradition and cultural value of gold, especially in our country, has been very rich throughout many decades. On top of all that, gold as an investment option also shines bright, which is why it is a part of most investor’s portfolios.

So today, we bring to you the company profile of Gullak, which is a digital gold investment platform, which helps investors plan, save & grow their money through gold investment.

Corporate Structure & Founders

Founded in 2021, Gullak is registered under the name of Finterscale Technology Pvt Ltd. The digital gold investment app has three founders:

1. Manthan Shah

2. Dilip Jain

3. Naimisha Rao

All three co-founders have a rich experience in a wide range of fields, including product, marketing, growth and technology. All three of the co-founders are also the directors of the company, as per MCA Data.

Gullak’s Business Model

Just like most digital gold investment platforms, Gullak earns money through sources such as spread on gold prices, gold leasing, value added services etc.

As per the platform, it does not charge any transaction fees and storage costs from investors.

Is Digital Gold Regulated In India?

No, currently, digital gold is unregulated in India, neither under the RBI nor SEBI. So there is no official government-run regulating body to keep a watch on digital gold transactions.

Why RBI Or SEBI Is Not Regulating Digital Gold?

In October 2021, SEBI had asked investment advisers to refrain from dealing in digital gold, which is an unregulated product. This came after SEBI noted that some registered investment advisers are engaged in unregulated activity by providing a platform for buying, selling or dealing in unregulated products including digital gold.

Earlier, through a letter dated August 3rd 2021, SEBI had informed the NSE that the said activity is in contravention of Securities Contracts (Regulation) Rules (SCRR), 1957, and the members should refrain from such dealings.

The SCRR norms restrict members from engaging, either as principal or employee, in any business other than that of securities or commodity derivatives, except as a broker or agent, not involving any personal financial liability.

Now it remains to be seen whether the SEBI or RBI comes with any regulations for digital gold in near future.

What Is Gold Leasing? How Does It Work?

Gold leasing is a unique and innovative investment opportunity in the alternative investments space.

Simply put, you, as an investor, can rent out/lease out your digital gold to jewelers who use this gold as part of their day-to-day business and for working capital. And throughout the period during which they hold onto your gold, you remain the owner of the gold, and keep getting interest from the jewelers (usually every month), for the gold they have borrowed from you. The interest is usually in the form of gold grams.

Taking Gullak’s example. If you lease out 100 grams of gold to a jeweler, you receive extra 5 grams in year 1. So you now hold 105 grams of Gold - All of this 105 grams will benefit from Gold price appreciation.

If you invest 100 grams of Gold in Gold leasing & leave it for 8 years, you will get 48 grams of Gold extra & all the 148 grams of Gold will benefit from increase in Gold price. In terms of Rupees, if you invested Rs 6 lakh, you will get Rs 20.4L at the end of 8 years! (Assuming 11% CAGR on Gold)

Risks Involved In Gold Leasing

1. The biggest risks in gold leasing is what if the jeweler to whom your gold has been leased, defaults, or uses your pledged gold for some other bank loans, and last but not the least, comes the risk that arises from the fact that digital gold is unregulated.

To simplify all this for you, we went on to seek answers from Gullak itself, with their customer support executive patiently answering our doubts. Here are what all insights we got to know from Gullak, regarding their gold leasing mechanism:

The jewelers to whom Gullak gives investor’s pledged gold as collateral, are verified by Augmont, and are backed by bank guarantee. As far as the possibility of the jeweler using the gold as collateral to other bank, Gullak clarified that it is not possible because their contract with the jeweler prohibits them from breaching it. But still, just in case the jeweler defaults on any payment, Gullak has the right to liquidate that guarantee.

Gullak also claims that the invested amount in form of gold lease to the jewelers is secured by 100% collateral. These guarantees are equivalent to 100% of the total gold quantity leased to the jeweler, and get invoked in case a jeweler fails to make the repayment to the investor.

“We follow all protocols defined by the RBI. Investors invest in pure gold directly from Augmont, which is the largest gold refinery in India, and has been in the industry for the last 40 years. Augmont also supplied raw materials to leading jewelers like Kalyan, PNG jewelers , etc. As you invest, you get various certificates as proofs, including- Purchase invoice, Investment certificate, Monthly statements, Purity certificate for gold, TDS certificate for every quarter, capital gains statement for all financial years, etc.”

2. But what if Gullak shuts down? What happens to your gold? Who takes responsibility of such risk?Gullak clarified this as well, mentioning that even if in any unforeseen circumstances Gullak shuts down, investors can contact Augmont and get all the details of their investment. They reiterated that their corporate guarantee secures 100% of the invested value as well as 100% of the interest.

3. Another risk is the gold price’s fluctuation, i.e. gold’s purchase price and sell price tend to always be different, due to factors such as state transportation costs, storage costs, platform costs, insurance charges, etc, all these are determined by the market.

What Do Jewelers Do With The Leased Gold?

Jewelers need gold for jewelry in the same way as any business needs raw material or working capital. It is less expensive to take leased gold as compared to a business loan in lakhs or crores, or buying gold in large quantities. Moreover, leasing also protects jewelers from any losses that might occur due to daily price fluctuations.

How Are The Jewelers Verified By Gullak?

Jewelers on Gullak’s platform are onboarded by Augmont. Augmont verifies and onboards the jewelers based on their financial track record, overall business performance, and credit & trust worthiness. So, only jewelers with high credibility and deep working relationships are onboarded on Gullak’s platform. These jewelers are also required to provide a collateral equivalent to their maximum allowed leasing quantity, before they are onboarded for leasing.

Is There Any Tax Implication On Interest Paid By Gullak?

We had enquired with Gullak’s platform, and they had confirmed that the extra 5% returns you get on Gullak’s Gold plus scheme are pre-tax returns with TDS of 10% getting deducted by the jeweler from your earned interest. That TDS is paid to the government, and the net interest is credited to your account in case of Gullak’s Gold Plus scheme.

For the regular gold or silver investments on the app, there is no TDS because you do not earn any interest, only the market appreciation is there.

Also, short or long term capital gains tax becomes applicable depending on when the gold was sold.

Its important to note that capital gains taxation for digital gold is similar to physical gold. The LTCG tax on the sale of digital gold is 12.5% (without indexation benefit), whereas STCG tax is charged according to your applicable tax slab.

Digital Gold vs Physical Gold-How Do They Differ?

1. Ownership: Physical gold provides direct ownership of the tangible asset (gold) in the form of coins, bars, necklaces, while digital gold represents a claim on gold stored in secured vaults by the service provider.

2. Storage: Physical gold requires secure storage solutions such as lockers, while digital gold is stored electronically, thus eliminating the need to physically store the asset.

3. Liquidity: Digital gold also tends to offers quicker liquidity compared to physical gold. For selling physical gold, the process can be time taking as you may first need to find a buyer like jeweler or gold dealer, and even after that, they might offer a lower price than the current market rate due to various factors like purity verification and making charges. On the other hand, digital gold offers higher liquidity as it can be sold instantly at market prices through online platforms. This allows users to quickly convert their digital gold holdings into cash without the need for physical transactions.

4. Costs: Physical gold often involves higher costs due to making charges, storage, and insurance, whereas digital gold typically has much lower transaction costs.

Things We Like About Gullak

• It’s star product Gullak Gold+ gives investors an extra 5% gold (in grams) every year. This 5% is over and above the 11% market returns expected from gold investments. This makes the returns go upto 16%, which is quite attractive, but keep in mind that these are not straightaway 16% returns. Gullak’s 5% returns are added to whatever market returns are there, which can not necessarily be 11% always. Also, in Gold+, the return is paid out in grams of gold. The interest is calculated daily and accrued to your Gullak. This gets deposited into your Gullak at the end of every month, thus giving you some extra bucks as return every month.

• Their app also has a comparison calculator, wherein you can compare Gullak Gold+’s returns with other gold investment options such as physical gold, SGBs, and gold ETFs.

• You can start investing with as low as Rs 50 per day through Gullak’s SIP option. Investors can withdraw, pause or cancel it anytime!

• Besides Gullak Gold+, they offer a wide range of digital gold investment options such as gold coin savings, child’s future plan scheme ‘Nanhi Muskaan’, savings scheme ‘Gullaks’, one click saving through ‘SnapSave’, and much more.

• There are no charges to use the Gullak app and invest through it.

• Their 100% collateral guarantee ensures maximum security to your invested money. These guarantees are equivalent to 100% of the total gold quantity leased to the jeweler, and get invoked in case a jeweler fails to make the repayment to the investor.

Things We Don't Like About Gullak

• Lack of regulation: The biggest risk with gold leasing remains that it is unregulated. This means you do not have any grievance redressal option or recourse in case of an unfortunate scenario leads you to losses.

Given that digital gold is unregulated in India, Gullak as a platform too is neither under the RBI nor SEBI’s regulations. So there’s no regulatory body to protect your investment if a digital gold platform defaults or delays payment. However, Gullak claims that your money is fully secured, as it is stored in secured vaults at Augmont, which is one of the most trusted gold refinery of the country and it is accredited by govt. of India.

• You cannot pledge physical gold: If you have physical gold at home, Gullak does not allow you to lease that out for its Gold+ scheme. Currently, the Gold+ offering is available only for the Gold that you buy on the Gullak app.

Conclusion

In conclusion, it’s fair to say that Gullak presents a promising opportunity for investors looking to diversify their portfolios with digital gold. While the platform offers attractive returns and innovative investment options like gold leasing, potential investors should be aware of the risks associated with the lack of regulation in the digital gold market. Gullak's offerings, such as the Gullak Gold+ and various savings schemes, provide flexibility and potential for growth, but it's crucial for investors to conduct thorough research and consider their risk tolerance before investing.

As the digital gold market evolves, it will be interesting to see if regulatory bodies like SEBI or RBI introduce measures to safeguard investors. Overall, Gullak stands out as a noteworthy player in the digital gold investment space, offering unique benefits and opportunities for those willing to navigate the unregulated landscape.

Please note that this is an opinion blog and not an official research or investment advice. This blog aims to help retail investors make an informed decision in the bond market, and neither encourages nor discourages you from investing in any particular bond or any other asset class.*

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