Gold on Dhanteras: celebrate the ritual, rethink the investment

Summary

There is nothing wrong with the ritual. Just don't mistake it for investing.

Every year during the Diwali season, as Dhanteras comes around, people who have never bothered to invest in a planned way step out to buy gold on the same day. Jewellers stay open late, queues form at shop entrances, and almost the entire nation performs in unison what many believe is an act of investment.

I'll be careful here, because this column is about money, not culture. The Diwali season is wonderful, and Dhanteras is one of its best parts. The lamps, the cleaning of homes, the sense of a fresh beginning, the gathering of families. None of this needs improving, least of all by me. If your family welcomes prosperity by buying a little gold, buy it with all your heart. The ritual is not the problem. The problem begins when we mistake the ritual for a financial decision.

Look at what is actually bought that day. For most families, it is jewellery, bought with a hefty markup in the form of 'making charges' that vanish into thin air as soon as you leave the shop, or coins that spend years in a bank locker that costs money to rent. Whatever else this activity may be, it will not build wealth. It is consumption, often very enjoyable consumption, but it does not become investment simply because the day is auspicious.

So examine the behaviour itself. No other investment is made this way. No one wakes up on a specific day to buy mutual funds or stocks. Yet, with gold, crores of people buy on a particular date. Tell someone you plan to buy a stock on a specific day because it is auspicious, and they will tell you that you are not investing at all. The festival simply hides this absurdity under a warm glow, making behaviour we would laugh at anywhere else feel acceptable.

A safety net

The tradition of holding ornaments as wealth has obvious historical roots and, let's be honest, remains relevant today, though as collateral rather than as savings. For generations of Indian families, when cash ran out, the women's gold was the ultimate reserve. It remains high-value, credible collateral, and over the last two decades a whole lending industry has grown around it.

RBI data shows that banks alone had about ₹5 trillion of gold jewellery loans outstanding in May 2026, roughly double the amount a year earlier. Add non-banking financial companies (NBFCs), and the total crosses ₹8 trillion. The gold itself is worth far more because lenders maintain a margin, lending no more than 75-85% of its value, and usually less. That puts the jewellery pledged against these loans at well over ₹11 trillion.

Compare that with the ₹37.5 trillion in India's equity mutual funds, according to AMFI. The gold lying pledged in lenders' vaults is worth close to a third of that amount. But a pledged ornament is a fallback, not an investment, and the Dhanteras reflex is best treated as a tradition, not as part of personal finance.

My regular readers know that over the last couple of years, I have softened on gold and written more than once that a small allocation is good. I think of it as insurance against a world where the monetary order looks less solid than it used to, and holding gold is no longer the irrational act I once believed it was. I stand by that.

But the Dhanteras purchase sits far from that logic. Insurance is bought in a form you can sell when you need it, as a small part of an overall financial plan. Dhanteras gold is bought on impulse, in the least liquid and most expensive form. Gold can be a hedge, but what you carry home from a jeweller in a fancy bag cannot play that role.

Keep it separate

So what should you do when Diwali is in the air, jewellery shops are glittering, and everyone around you is buying? I would say, honour the ritual as a ritual. If you love Dhanteras, buy ornaments, enjoy them, gift them, and watch them being worn with pleasure. But in your head, account for them honestly in the expenditure column, not as part of your investment plan.

If you want real gold holdings, keep them in a highly liquid form that costs little to hold. Bangles or necklaces do not qualify.

As I was finishing this column, most large fund houses stopped accepting fresh money into their gold funds of funds from 16 October, reportedly at Sebi's nudge, with the rupee weak and the festive import rush ahead. You can still buy gold ETFs on the exchange if you have a demat account. The jewellers, of course, are staying open late.

Dhirendra Kumar is founder and chief executive officer of Value Research, an independent investment advisory firm.