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Investing In Gold Vs Mutual Funds

Which is a better investment option between mutual funds vs gold? Read here to know the difference between gold and mutual fund in terms of returns, tax implications and risk.

You can ask anyone in India today and they will tell you that they have invested in the very popular “gold'' at one time or another. This is a precious metal, classified by its caratage,  and it has been a famous investment mode for decades, if not centuries. Typically, coins made of the shiny yellow metal are bought for investment, and ornaments serve the purpose of investment and adornment. Moreover, with new-age technology, investors are able to invest in small units of gold, with digital gold investment. 

Now if you are thinking of gold vs. mutual funds, you should know about both these investment tools to make informed decisions. In contrast to gold investment, considered traditional by many, mutual funds offer investment in funds linked to the market, and securities thereof. These market-linked channels offer you investment in equities, debt or both. These funds can produce substantial returns, and investors can gain significant wealth in the long term. 

Investment in Gold vs. Mutual Funds 

In India, some individuals prefer gold as a choice of investment over many other vehicles, as it offers liquidity and is a hedge against inflation. However, gold is now available as digital gold and as gold ETFs. Mutual funds are funds that are linked to the markets, and managed by a fund manager. Typically, an AMC, or asset management company, makes a pool of capital from investors and this is invested in bonds, stocks and other classes of assets. If you are considering mutual funds vs. gold, then a comprehensive comparison between the two must be done before you invest. You can find this in the table below: 

Different ParametersMutual Funds Gold
Investment OptionsFunds: large-cap, mid-cap, small-cap, multi-cap, etc. 
Mode of Investment: regular plans, direct plans
Physical Gold: jewellery, bullion, gold monetisation schemes
Digital Gold: gold mutual funds, gold ETFs, sovereign gold bonds
Historical ReturnsThe returns generated from mutual funds vary with different plans. Nonetheless, if you consider the index as a base, around 10% - 12% returns have been generated by mutual funds. A few funds have also produced returns in the region of 15% - 18% per year. In the long run, gold has consistently been providing historical returns of 10% - 13% per year. 
BenefitsMutual funds give investors an entitlement to get dividends when companies declare these. Securities in the portfolio of the fund may be volatile, so they benefit from market shifts. Mutual funds are considered riskier than gold, but have the ability to produce greater returns. In comparing gold investment vs. mutual funds, gold gives you steady returns for the long term. In the event you make investments in sovereign gold bonds, the government gives interest payouts. Gold represents a hedge against inflation forces and provides high liquidity. 
Cost of InvestmentInvestments with mutual funds allow you to begin your investment with only Rs. 500. You can invest in a regular mutual fund with a lump sum amount or take the SIP path, where you invest in instalments (as little as Rs. 500). Physical gold investment may require you to invest in thousands and even lakhs of rupees. However, digital gold units can be purchased with amounts as minimal as Rs. 100. 
RiskMutual funds are linked to market instruments, and are considered risky when you compare gold vs. mutual funds. Mutual funds may be seen as less volatile relative to investment in direct equity as they are professionally managed by fund managers who are experienced hands at investment.  As an asset, gold is among the least risky assets today. 
Tax BenefitsSaving taxes is possible with mutual funds, and there are certain “tax saver funds” that help you do this. These are in the form of ELSS funds and if you invest in these, you get tax deductions under Section 80 C of the Indian Income Tax Act of 1961. Except for gold monetisation schemes and sovereign gold bonds, most investments in gold do not have tax benefits. 

Who should invest in these asset classes? 

While investing in gold vs. mutual funds, it is worth knowing what kind of asset matches investors of a certain kind. There are specific investments that suit some investors better than others, and this is largely dependent on an investor’s risk appetite and the time horizon involved in the investment. However, both gold and mutual funds should be invested to some extent to maintain portfolio diversification, although some investors may tend to invest in one instrument more than the other. 

  • Who should invest in mutual funds? 

If you invest in mutual funds, you will discover that you get portfolio diversification, and this is across all assets. Thus, this lowers your potential for risk. With mutual funds, you have a range of investment options, as you can invest in debt and equities spread through sectors. Expert fund managers manage and operate mutual funds. The goal of any fund manager is, thus, to effectively maximise returns for investors. 

For investors who are thinking about investment in gold vs. mutual funds, and don’t want the hassle of managing funds, this is a good way to invest. Also, investors who wish for exposure to equity in certain proportions and for those who want diversification, mutual funds offer the balance that specific investors require. Mutual funds offer investors funds in several types, so there is a fund for every kind of investor. 

  • Who should invest in gold? 

The worth of gold depreciates only rarely, regardless of the fact that it may not create great returns for investors. However, gold is a low risk investment and is great for those who want safety and high liquidity. Several Indians like to invest in physical gold in the form of jewellery and ornaments, as this serves the purpose of investment and adornment. Furthermore, the purity of gold can be authenticated easily and you can buy and sell it easily, over the counter. In terms of gold vs. mutual funds, gold is quite an excellent investment for traditional investors who like to hoard it for a rainy day. It is a good hedge against inflation and gives investors a real sense of security. 


  1. Who should invest in gold?

Investors who want safety and liquidity in investment should invest in gold, either in physical form, gold ETFs, or digital gold. 

  1. Do you get any tax benefits if you invest in gold?

Except for sovereign gold bonds and gold monetisation plans, there is no real tax saving that you get with gold investments. 

  1. Which is the least risky asset today, gold or mutual funds?

Gold is among the least risky of assets today, as it provides stability with hardly any major sporadic price changes. Mutual funds are related to market securities, and those linked with equity may be more risky investments than those that invest in debt. Therefore, considering gold vs. mutual funds, gold is the less risky of the two. 

  1. What is the initial cost that investors have to bear while investing in mutual funds?

It is possible to start a mutual fund investment with only Rs. 500 if you invest through a systematic investment plan (SIP). You can also make lump sum investments, and the amount you invest depends on your disposable income for investment. 

  1. Which has more investment options, gold or mutual funds?

Investment options largely depend upon an investor’s appetite for risk and the time horizon in question. With gold, you can invest in gold ETFs, digital gold, sovereign gold bonds and physical gold, among other kinds of investments. With mutual funds, there are different types to choose from, according to how they invest in equity and debt, and the proportions therein. 

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