Should you buy gold or invest in mutual funds?

Imagine the first sweet message you get every first week of the month “Your Bank Account XXXX has been credited with Rs. XXXXX”. One of the issues with the young generation is not with earning income. The main problem, for many, lies with “managing” the income.

When it comes to investing their savings, people are generally confused between choosing gold investment versus mutual funds.

What are the benefits of investing in gold?

  • Indians have religious and cultural sentiments attached to gold. Hence, the general instinct is “buying” the gold. Thus, the value of gold rarely degrades.
  • It can be stored in physical forms, such as gold biscuits, and it can be converted into jewellery whenever required.
  • It has global acceptance, and it is highly liquid. This is the reason why gold is treated as a safe investment.

What are the drawbacks of investing in gold?

  • Gold has to be stored in bank lockers or some secure vaults. Storing the gold at home has the risk of theft.
  • Making charges are incurred if you wish to convert it into jewellery.

What are the benefits of investing in mutual funds?

  • A mutual fund creates a pool of funds, and the said pool is invested in various avenues. Thus, there is automatic diversification of funds
  • There are various options for mutual funds investments such as equity, debt or hybrid depending on the risk appetite of the investor
  • The funds are managed by financial experts. The incentives of these managers are linked with the growth of the fund value
  • Higher the risk, higher the return

What are the drawbacks of investing in mutual funds?

  • Market volatility can lead to capital erosion if the underlying securities underperform
  • While you can immediately sell physical gold in brick and mortar stores, liquidating mutual funds, though hassle-free, could take a little more time than that.

What is a better investment, gold or mutual funds?

What suits an investor could depend on a lot of factors. There are many investors who might prefer mutual funds over gold for reasons like:

  • The flexibility of investment at lower amounts
  • Diversification of risks
  • Choice of products as per risk appetite
  • Investments are managed by expert fund managers

However, recall the first lesson of investment “Don’t put all your eggs in one basket. Always diversify”. Gold markets see cyclical boom from time to time, more so in times of economic uncertainty. This could also happen when the markets are in a downtrend.

Comparative analysis of gold vs mutual funds:

Particulars Gold investment Mutual Funds
Sub-types This investment can be in the form of physical gold, gold ETFs, Gold Mutual Funds and Sovereign Gold Bonds This investment can be in equity, debt or hybrid mutual funds. Each subtype has further divisions
Risk For physical gold, there is a risk of theft Risk changes as per the scheme and asset-class chosen by an investor
Charges for trading The costs associated with gold are on storage cost and conversion/jewellery making charges Mutual funds charge a fund-management fee and an exit load if the investor sells his/her holdings within a specified period
Returns Subject to price appreciation from time to time Subject to market movements and dividend payouts by underlying securities
Investment Amount required When it comes to physical gold, typically the transactions happen in multiples of one or 0.5 grams of Gold. Some digital gold investment schemes offer investments at as low as Re. 1 You can start with as low as Rs. 500. Some platforms also offer options starting from Rs. 100

Gold or mutual funds – Which is the better option for you?

Gold and mutual funds are very different products that could suit different investors at different stages of financial planning. Reach out to a financial advisor for tailor-made financial solutions to meet your needs.