India’s deep connection to gold remains strong, with traditional jewellery still valued for cultural and emotional reasons. However, modern investors, especially millennials, are moving towards digital and financial forms of gold that offer better returns and convenience.
Jayatu Sen Chaudhury, finance professor at Great Lakes Institute of Management, notes that Indian households own about 24,000 tonnes of gold jewellery—more than the official reserves of several major countries combined. This gold stockpile equals nearly 40% of India’s GDP, highlighting gold’s cultural and economic importance.
In 2024, India’s gold demand rose 5% to 802.8 tonnes, with jewellery accounting for 563.4 tonnes. Yet, over 65% of millennials now prefer digital gold due to its flexibility, ease of access, and higher returns compared to physical gold.
Uniform Taxation on Gold Investments
All gold forms in India—including jewellery, ETFs, digital gold, and mutual funds—are taxed the same way. Gains from sales within 24 months are taxed as per the individual’s income tax slab. If gold is held for more than 24 months, gains qualify as long-term capital gains (LTCG) and are taxed at 12.5%, without indexation benefits.
Also, during tax assessments, jewellery up to certain limits (500 grams for married women, 250 grams for unmarried women, and 100 grams for men) is exempt from scrutiny even without purchase proof.
Different Ways to Invest in Gold
Jewellery: Gold jewellery remains popular for weddings and festivals, but it is not an efficient investment. Making charges (10-25%) and resale markdowns (5-10%) reduce its value. Annual returns average around 6.5%, lower than other gold investment forms. Jewellery is also harder to document for tax purposes.
Gold ETFs: These funds represent physical gold stored securely and traded like stocks. They have low expense ratios (0.3%-1%) and offer high liquidity. Over the past decade, gold ETFs in India have delivered annualised returns of about 11.4%.
Leading ETFs include Kotak Gold ETF, Nippon India ETF Gold Bees, and HDFC Gold ETF. ETFs provide transparency and simplify tax reporting.
Digital Gold: This option allows investors to buy gold in small amounts, starting from ₹1, through apps like Paytm, Google Pay (with MMTC-PAMP), and Groww. The gold is physically stored and insured, with options to redeem as cash or physical gold.
Digital gold offers annualised returns of 8-9%, better than jewellery and close to ETFs for small investors. It is popular among young and first-time investors, especially in semi-urban and rural areas.
Gold Mutual Funds: These funds invest in ETFs or gold-linked assets and do not require a demat account. They suit investors who want managed exposure without daily price tracking.
Top funds like HDFC Gold Fund and Axis Gold Fund have delivered annualised returns of 11-12% over the past 5-10 years. Expense ratios are slightly higher than ETFs, but they offer professional management. Taxation is the same as other gold investments.
This shift from physical to digital and financial gold reflects changing investor preferences in India, driven by the search for better returns, convenience, and tax efficiency.
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