Mutual funds pool investor money to buy securities, with unit prices tied to market performance, while gold is a low-risk commodity. Mutual funds, often investing in stocks, carry a higher risk than gold but less than direct stock investments due to professional management by expert fund managers.
An important part of investing is making an informed choice between two or more different investment options. Two such investments are gold and mutual funds. Although the two investment options differ greatly in many respects — right from the risk involved to the returns expected — you need to know how to compare gold investments vs mutual funds and make a smart choice between the two.
Gold is a relatively secure investment option that can be a hedge against inflation. Mutual funds, on the other hand, offer the advantage of compounding if you opt for a SIP and may deliver market-linked returns (depending on the type of fund). In this article, we take a deep dive into gold vs mutual fund investments to see how the two compare.
Understanding gold investments
Gold is a precious metal that is available in a limited quantity. This makes the demand for the commodity higher than its supply. As a result, its price is expected to increase with time and even yield inflation-beating returns. While physical gold has been the traditional way to invest in this metal, today, you can opt to invest in digital gold instead.
Understanding mutual funds
Mutual funds are financial investments that use a common source of pooled capital to purchase different assets like stocks, bonds, other debt instruments and money market securities. Based on the objective of the mutual fund and the primary assets in its portfolio, there are different types of funds you can choose from.
Key Differences between Investing in gold vs mutual funds
To better understand how gold vs mutual fund returns compare, check out the table to see how the two investments differ from one another.
Particulars |
Gold investments |
Mutual funds |
Nature of investment |
Physical or digital precious metal |
A pool of funds invested in various assets |
Risk |
Generally has lower risk and stabler value |
Higher risk as the value depends on market conditions |
Returns |
Typically slower growth |
Potentially higher returns, but they vary greatly |
Liquidity |
High liquidity as it is easy to buy and sell |
Liquidity depends on the type of fund |
Costs |
Storage and insurance for physical gold but lower fees for digital gold |
Management fees, operating and administrative costs and entry/exit load |
Diversification |
Low diversification |
High diversification across different asset classes |
Time horizon |
Often used for long-term wealth preservation |
Can be suitable for short-term, medium-term and long-term investments |
Tax treatment |
Subject to capital gains tax if sold at a profit |
Also subject to capital gains tax if sold at a profit, but ELSS funds offer tax benefits on the invested amount and long-term capital gains on equity funds are tax-free up to Rs. 1 lakh |
Inflation effect |
Often considered as a hedge against inflation |
Real returns may be affected by inflation |
Who should invest in gold?
Gold may be a suitable investment choice for your portfolio if:
- You are looking for a traditional and secure investment that retains value during economic downturns
- You want to diversify your investment portfolio beyond stocks and bonds
- You seek an investment that has the potential to hedge against inflation
- You prefer an asset that can be equally liquidated
- You have a lower tolerance for risk
- You seek passive investment options
Other mutual fund related topics you might find interesting |
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Who should invest in mutual funds?
Mutual funds may be a better choice for your portfolio if:
- You are seeking higher potential returns through diversified investments
- You want your portfolio to be professionally managed
- You prefer some degree of liquidity in your investments
- You are interested in a range of investment options to suit different risk profiles
- You want tax benefits to reduce your tax liability
- You are targeting specific financial goals with different time horizons
Gold vs mutual fund - Which is the better investment option
Making the choice of gold vs mutual fund investments may be difficult for many investors. If you, too, are having trouble with the gold investments vs mutual funds comparison, the pointers outlined above can help. Ultimately, the choice depends on your financial goals, investment horizon, risk tolerance and investment budget or funds available.
Conclusion
The choice of investing in gold vs mutual funds ultimately depends on your financial goals, priorities, risk tolerance and capital availability. Mutual funds can be highly beneficial if you are looking for an easy way to diversify your portfolio. To include these investments in your portfolio, check out the 1,000+ mutual fund schemes available on the Bajaj Finserv Mutual Fund Platform. Here, you can compare mutual funds, see which schemes align with your goals and add them to your portfolio by making a lumpsum investment or starting a SIP.
