When it comes to investing, choosing a write option significantly impacts your future financial growth. In the era of financial reform, many investment options are available, claiming high returns on invested capital. But, Gold and Mutual Fund are two most popular investment options in India that are considered a great choice to invest in. They offer unique advantages and serve various financial goals with some risk and limitations associated with them. Gold has been used as the safest investment option for ages. People trust in buying gold due to its ability to preserve wealth during economic uncertainty. On the other hand, Mutual funds provide access to a diversified portfolio built and managed by professional fund managers to generate higher returns. When both options are good for investment, it's often challenging to choose one. The comparison between Gold and Mutual Fund aims to break down the characteristics, benefits, and drawbacks of both assets to make informed financial decisions.
Head-to-Head Comparison of Gold vs Mutual Fund
Gold vs Mutual Fund: Overview
Gold is a highly popular investment asset, especially in India, as it's not just a metal; its a sentiment. People in India prefer buying gold due to its long-term wealth creation. It was used as currency when paper money had not evolved. People can now buy gold in various forms for safety and ease of use, which include physical gold, digital gold, gold mutual fund, gold bonds, and gold exchange-traded fund.
A mutual fund is a fund that pools money from various investors to buy a diversified portfolio of securities such as stocks, bonds, and other assets to generate high returns. These funds are managed by skilled fund managers to maximize returns and minimize risk. Investing in a mutual fund is a good investment method to invest in a diversified portfolio by minimizing risk.
Gold vs Mutual Fund: Return
Gold is a good investment option, but it generally generates less return compared to mutual funds. It can generate up to 10-13% return per annum in the long run.
On the other hand, the return from a mutual fund is not fixed and varies depending on the different mutual fund plans. A mutual fund can generate returns ranging from 10 to 18% per annum, which is slightly higher than Golds return.
Gold vs Mutual Fund: Risk
Though risk and return go hand in hand, it's always necessary to evaluate the risk associated with the asset you are investing in. Gold is comparatively less risky than Mutual Funds due to its high demand, which provides an opportunity to sell when needed.
While a mutual fund is a high-risk investment due to stock market involvement. Most of the funds invest money in the stock market to generate high returns, which makes it riskier than gold.
Gold vs Mutual Fund: Liquidity
Gold is a highly liquid instrument compared to a mutual fund, which can easily be converted into cash by visiting any jewelry shop due to the high demand.
Mutual funds are an open-ended scheme that can also be easily converted into cash by selling them on the stock exchange. But, usually people dont send anytime as it can affect the return generation.
Gold vs Mutual Fund: Performance During Crises
Gold dominates mutual funds and has shown record performance during crises. In a crisis, the Stock Market takes a dip, and investors search for the safest option to invest. Therefore, they invest in gold.
Due to the stock market dip, mutual funds also fall, resulting in poor performance and lower returns. However, it's temporary because when the market corrects, the funds recover the value lost and start providing returns.
Gold vs Mutual Fund: Tax Benefits
Investing in gold, a gold monetization scheme, and barring the Sovereign Gold Bond doesnt provide any tax benefits.
On the other hand, Mutual Funds dominate in Tax benefits, as investing in tax-saving funds provides tax benefits that are not available in buying gold.
Gold vs Mutual Fund: Compounding
Gold is lagging in compounding as it does not give any dividend or interest to its investors that can be reinvested.
Mutual funds are the best option for investment when it comes to compounding. Growth funds offer the best fruit of compounding while investing in them.
Gold vs Mutual Fund: Cost
Investing in gold generally comes with risk rather than cost as compared to a Mutual Fund. Keeping physical gold at home is risky, while digital gold involves some associated fees.
Mutual Funds are a little costly than gold as investing in mutual funds includes various costs such as management fees, operating and administrative costs, and entry/exit load.
Gold vs Mutual Fund: Options
Both Gold and Mutual funds offer various investment options to generate high returns. Investing in gold provides options in the form of physical and digital gold, which include bullion, jewelry, gold monetization schemes, gold mutual funds, gold ETFs, and sovereign gold bonds.
A mutual fund provides investment opportunities through company selection, modes of investment, modes of operation, and a variety of financial instruments. This includes large-cap, mid-cap, small-cap, and multi-cap funds, which can be invested in a direct plan or a regular plan with the preferred mode of operation, including actively managed and passively managed in desired instruments such as equity, debt, hybrid, gold, etc.
Conclusion
Both Gold and Mutual Funds offer exceptional advantages and serve distinct investment goals. Choosing between gold and a mutual fund depends on financial goals, risk tolerance, and investment horizon. Gold offers safety, liquidity, and acts as a hedge against inflation, while a mutual fund, especially the equity funds, is known to provide higher returns on your invested value due to involvement in the stock market and managed by skilled fund managers, though they come with certain risk. If you prefer stability, an inflation hedge, and long-term security, gold can be a good option; on the other hand, if you prioritise capital appreciation, goal-based investing, and can manage risk, a mutual fund is a better fit.