Mr. Naveen Tahilyani Partner, McKinsey said "Savings in gold is not productive as it doesn't flow into the financial system and are purely for returns."
According to McKinsey, 70 per cent of Indian household savings are in physical assets like gold and real estate.
For moving physical assets to financial assets, the McKinsey report suggested creation of gold-backed capital market products like exchange-traded funds (ETFs) and Gold saving schemes (GSS) that replicate the risks and returns of physical gold.
Gold ETFs, since their launch in 2007, are gradually becoming popular among investors. GSS is a new product where investors can invest in smaller denominations of Rs 100 or Rs 500 per month to build their gold portfolio. Kotak, Reliance and SBI Mutual Fund have launched GSS schemes.
The report recommended players to focus on customer education on gold ETFs and GSS and independent financial advisers to deepen retail participation.
McKinsey also suggested activation of broker sales channel to increase the distribution of gold ETFs because the margins on ETFs are the same as cash equities.
With the glitter of gold all around, proportion of household savings flowing into the equity markets has reduced from about 8% of total savings in FY05 to 4% in FY10.
According to the report, out of Indian household savings of Rs 15,50,000 crore in FY10, 6% is in gold, 35% in real estate and 26%t in bank deposits..
Indian households have the highest savings rates in the world. Household savings rates have increased from about 11% in 1980 to over 35% today.
However, the stock of physical savings in India is significantly higher than that for other economies: India (70%), US (33%), Germany (50 %) and Malaysia (34 %), the report said.
Savings in financial assets are dominated by bank deposits and insurance, with only nearly 8% of all financial savings moving to the capital markets in FY10.
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