When gold investment is being concerned in Malaysia, many people always come across an investment scheme - Genneva Gold Investment Scheme. It has been a very hot topic for years in several forums. Everyone is giving comments about this investment scheme.
About Genneva Gold Investment Scheme
In this scheme, you aren’t only the owner of the gold. You are also receiving 1.8-2.5% cash return (which is known as “Hibah”) every month for 3 months under Genneva’s Syariah principle-based product plan. At times, they do offer 3% Hibah per month.
The scheme works similar like Fixed Deposit (FD). You can sell back the gold with the price you buy from them after the contract ends. Hence, your capital is 100% protected, yet with an annual return rate of 21.6-30.0%.
How it works
To begin a contract, investors purchase the gold with a sales and purchase agreement, letter of Hibah, certificate of ownership and the physical gold. After that, investors can enjoy the “Hibah” until the contract ends.
When the contract ends, investors have 3 options:
- Keep the physical gold
- Sell to third party
- Sell back to Genneva with the SAME price investors purchase
It sounds extremely fantastic for most of the people. It seems like “the best investment ever” whereby your initial capital is fully protected and the “Hibah” is guaranteed! FD will only yield around 3% to 4% per year, while Genneva is guaranteeing investors the high return. In addition, there are 3 exit strategies for investors.
Everything seems too good to be true. As an investor, we always need to be aware of investment schemes which are offering extremely high return with little or no risk.
I decided to dig things out by researching about this investment scheme. Besides, I also attended one of their seminars last year. There are several agendas that I’m going to shared in this post.
1. High Premium
I saw many people are saying this in forums and I personally believe it. When I attended the seminar, the spot price of gold per gram was around RM168, gold smiths are trading at around RM200 to RM220 that time and Genneva was quoting us at about RM220 to RM230. The mark-up is way to high from what I expect. People are also mentioning that the gold bullions offered by Genneva is at the price of gold jewellery that gold smiths are trading at, and sometime even higher.
A very general advice that Genneva gold bullion investors and their consultants say is to keep the gold bullion bars if the sport price goes up after the contract ends and sell them to the gold smiths to earn a better return. Genneva will never hope investors to sell back the gold back to them.
After several research, I find that doesn’t make sense. Genneva is selling gold bullion at an average of 20% to 25% extra premium (Around 40-50% above spot price). This means that you can only break-even if the price of gold goes up by 20% to 25% if you want to sell them to any third party! Investors got to keep the gold for long term before that can actually sell them and make a gain.
Genneva consultants claim that we can always sell the gold to gold smiths at the same premium rate and this never happen. In fact, many Genneva investors say that the gold will always be sold to third party (include gold smiths) at an average of 40% loss.
However, many optimistic investors aren’t claiming that this is the risk because they can always sell back to the company. My question is, what if the gold is lost during the delivery (for those investors who are staying in the place where Genneva’s office isn’t setup, such as Miri)? The minimum and maximum loss will be 100% of your capital, and this happened before.
The attractive return that Genneva offers is always something frequently questionable. Again we heard many Genneva investors say that “as long as I’m receiving Hibah, why do need to care where does the Hibah come from?”
As a careful investor, we shall always analyse and look at the whole scheme. The answer is pretty obvious. Investors who do not sell the Hibah back to Genneva, they’re paying the Hibah themselves! As mentioned above, the mark-up is as high as 20% to 25%. Giving 1.8-2.5% per month to the investors is extremely affordable for the company. As mentioned, Genneva always doesn’t hope investors to sell back the gold bullion and their consultants mentioned to me that usually investors won’t sell back because they’re positive with the growth of gold price.
Even if investors return the gold and get the capital back, Genneva will not make a loss. If you’re good in investing, you will know that with such a large money on your hand, you can do a lot of things to get the similar return. Genneva will do the same to offset the Hibah that they’re giving out.
As an investor perspective, you shall buy the gold and get the Hibah and sell back to Genneva after the contract and your net profit will be the 5.4-7.5% of Hibah per 3-month contract, provided there are no other risks.
3. Buy Back Guarantee
I believe this is another risk for investors. Genneva does offer buy back guarantee and during the seminar, those consultants are saying that they will always buy back the gold and return 100% of your capital.
However, buy back guarantee is something that they do NOT include in their policies. And, Genneva even claims that in newspaper.
Buy Back Guarantee is just something they practise, but they do not actually guarantee. You’re exposed to that risk if you’re hoping to get the Hibah only and sell back the gold bullion after the end of every contract!
4. Investigation of BNM
Until today, Genneva Sdn Bhd is still under the investigation of Bank Negara Malaysia (click here for reference). As a careful investor, would you risk your money in a company which is still under investigation since 2009 until today?
5. Turn Around Time
This is what I know from many investors. They don’t get the physical gold bullion right after they pay. Normally investors have to wait for at least 2 to 3 days before they can get the gold. For investors whose stay in a place where Genneva’s office isn’t available? They’ve to wait for the gold bullion for a longer period of time, as delivery takes time. There are several cases that investors receive the gold bullion few days before the contract ends!
The main concern is, who is going to be responsible for anything happen during that turn around time?
6. Shaky Business Model
There are too much things to be discussed and it isn’t possible to be mentioned here on by one. There are still a lot of things which are questionable. According to some Genneva ex-agent, the company keeps on changing policies which eventually make agents feel insecure and not comfortable. For me, the business model is relatively unstable.
And I always wonder one thing. If everyone is investing in Genneva Gold Investment Scheme just because of the Hibah and sell back the the gold bullion after every contract ends? It simply means that Genneva has to find ways to make money that yields minimum approximately 40% per year! By using your logic, do you think it’s possible? It may be.
Not forgetting that each agent is getting 0.5% commission and an extra 0.3% commission after their sales volume exceed RM3.5 million. Assuming that every agent is performing and getting 0.8% commission and every investor is investing vast sum of gold and get 2.5% of Hibah per month and sell back after contracts are expired, Genneva needs to find a business or investment that yields at least 39.6% in order to cover all these costs!
What about their operating expenses? Office rent, utility bills?
If investors start to sell off their properties, use credit card loans and go crazy with leverage and invest into Genneva Gold Investment Scheme that gives them 30% per year, can this business model sustain? This is possible because 30% of return is way too profitable if we compare with the rent received, and it’s for sure that the return can cover interest of any loans.
If everyone goes crazy in leveraging, is the business model sustainable? If there are 1,000 investors borrow money and invest RM1 million in this scheme, how will Genneva makes the RM400 million profit out of the RM1 billion, just to BREAK-EVEN?
If it’s not sustainable, how will this music stop if the day comes?
Advice for Investors
Investments always come with certain amount of risk. There are people who make good return without any problem with Genneva Gold Investment Scheme for the past few years. However, there are also a lot of people got deceived by the scheme.
The general and also the best advice for any investment is to invest only the amount that you are afford to lose. Another advice is do not borrow money and invest. If things go wrong, you will instantly carrying a huge amount of debt that you aren’t able to pay off.
Furthermore, if you’re really showing interest in gold and silver investment, I would highly recommend you to invest in physical gold and silver. Remember: If you don’t hold it, you don’t own it.