Gold vs Mutual Funds - Which One Should You Invest In?

September 15, 2022
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Gold has always been a preferred investment choice for most investors in India. However, gold investment is often driven by sentimental choices rather than being considered as an investment for maximising returns. In India, gold is a passive investment kept aside as an asset for use during unforeseen situations.

Over the last few years, gold has seen a significant growth compared to asset classes. Whether it is ornaments, gifts for weddings or savings for children's future, gold is the go-to investment for most Indians. While this may not be surprising, it’s interesting to note that now, an investment in gold doesn’t necessarily mean owning physical assets. There are plenty of gold linked financial assets such as Gold ETFs and Gold mutual funds, wherein the pooled funds are linked with this asset. The invested funds grow based on the performance and growth of gold in the market.

Similarly, investors can also choose digital gold investments - the gold purchased is stored by the company offering the investment in a locker, saving investors the hassles of locker charges or security concerns related to physical gold. 

One of the questions often asked is whether gold is better than mutual funds or vice versa? Let's look at the pros and cons of both investment forms before concluding on choosing the right investment.

Benefits of investing in gold

Here are some of the positives of gold investments:

  1. Different holding shapes

Gold is available for purchase in a wide variety of shapes and sizes, such as coins, bars, jewellery, and a variety of other available types of adornment. Gold can be purchased in a variety of carats and quantities, depending on the buyer's preferences and financial resources.

  1. Tangible asset

Gold is a tangible asset; nevertheless, compared to other tangible assets such as real estate, it is much simpler to acquire gold. Gold is a valuable commodity. The purchase of gold can be made by an investor by going to a gold shop. You can also purchase it in digital form. Many Indian investors would rather put their money into assets they can "touch and feel" before purchasing. Gold is favoured for a number of reasons, and this is one of them.

  1. Easy liquidity

Gold is a fluid asset. In the event that an investor needs to liquidate gold assets, they can do so at any jeweler's shop. Although the selling of gold is subject to certain regulations on various internet platforms, it is nevertheless possible to liquidate one's investment and receive cash in exchange. However, the gold that you already possess might not be able to fetch the same price due to a variety of factors, such as the imposition of wastage fees or melting fees, etc.

  1. There is no need for detailed research.

One can check the daily value of gold to determine whether or not it is a good time to purchase or sell it, and then proceed accordingly. There is no demand placed on the investor to conduct any kind of investigation on the commodity. On the other hand, an investor is responsible for doing at least some checks to ensure that the gold they purchase is genuine.

Disadvantages of gold investments

Before making any investments in gold, you should be aware of the following aspects:

1. Cost

Depending on the quantity and grade of gold that is purchased, the initial cost of a gold investment could be quite significant. Depending on the internet site that one utilises, one can purchase digital gold for as little as one rupee. Gold that is held in physical form incurs certain production costs, which typically amount to about 10% of the overall value. Due to the impossibility of turning gold back into cash, levying charges drives up the price of the precious metal. This can lead to a loss, particularly if the selling price is not high enough to cover the costs involved.

2. Returns

When compared to mutual funds, investing in gold does not result in the payment of dividends or additional profits. However, to profit from the investment, one must monitor the movement of the gold market and then sell the gold at a higher price.

3. Risks attached

The dangers associated with storing physical gold are far higher than those associated with digital gold. These risks include loss due to theft, damage, and other causes.



Mutual fund investment pros and cons

Mutual fund managers are accountable for making decisions regarding the financial assets the fund should invest in. Investors primarily utilise these pooled investment vehicles to diversify the holdings in their portfolios.

Benefits of investing in mutual funds

Let’s take a look at the pros and cons of investing in mutual funds.

1. Managed in a professional manner

Fund managers with extensive expertise working in their respective industries often manage mutual fund portfolios. They choose the most profitable stocks, bonds, and other financial instruments for the portfolio using knowledge and experience gained over the course of many years. As a result, investing in mutual funds is perfect for beginning traders because there is a low barrier to entry and minimal effort is required to make portfolio decisions.

2. A diversified portfolio

Mutual fund strategies may include investments in a wide variety of asset classes, including stocks, bonds, government securities, commodities, cash, gold, and other precious metals and commodities. The goal here is to achieve diversity so that investors can make the most money possible from their investments.

3. Minimal starting investment

Mutual funds require a significantly lower initial commitment than purchasing real gold does. An investor can begin investing in mutual funds with as low as one hundred Indian Rupees (Rs. 100) by using a tool known as a systematic investment plan (SIP).

4. Liquidity

If an investor finds himself or herself  in a dire circumstance, there’s a silver lining - most mutual funds  are quite simple to sell off. It is possible that it will take twenty-four to forty-eight hours for the funds to be credited to an investor's account.

5. Adaptable to a variety of desired monetary outcomes

An investor is able to choose a mutual fund that meets their personal financial requirements because there is such a wide variety of mutual fund options available on the market. Some of these mutual fund options include equity linked savings scheme (ELSS) for tax-saving, liquid or ultra short-term funds for short-term goals, and equity funds for long-term goals.

Gold vs mutual fund: which one to choose?

How long to invest in gold versus mutual funds should be considered. Additionally, selecting a specific financial instrument for investment also depends on your financial goals. Here are some aspects to consider for investors. 

  1. Gold's future performance versus mutual funds is hard to forecast: Equities and gold often perform differently. When one does well, the other suffers. Moreover, since mutual funds usually diversify, we can't predict their future success.
  2. Volatile gold returns: Many geopolitical, economical, and interest rate factors affect gold's performance. An investor must weigh personal financial goals and investing options. Focus on your goals, not returns.

Gold works for short- and long-term goals, but price swings must be observed. This helps investors decide on investment redemption.

Mutual funds serve several financial demands. Equity funds help with long-term aims, while debt money can be utilised for both. Before investing, consider these points.

Why choose Hubble Money to invest in gold?

With a highly reliable partner brand, Bluestone, Hubble Money offers you the option to create short-term investments to buy gold jewellery.  You also get 10% interest on each deposit made, making it easier to flaunt a stunning necklace or buy authentic gold coins as an investment. 

How to create a savings plan on Hubble Money?

To create your plan, you must:

  1. Select the desired partner brand (for instance, Myntra)
  2. Select the applicable savings plan displayed on the home page (for instance, ‘get 10% extra  on savings plan’) by clicking the Get Started button.
  3. A new page will open.
  4. Select the Customize option to change your deposit amount along with tenure.
  5. Review the plan to verify the selected details.
  6. Click the Pay button and complete the payment via your desired mode (such as UPI).
  7. Your savings plan will be made! 


Why are gold mutual funds better than buying gold?

Gold mutual funds can be bought at a minimum amount of as low as Rs. 500 or as prescribed in the scheme. Therefore, investors who are looking to make a regular investment instead of a lump-sum investment can opt for gold funds as compared to buying gold.

Do mutual funds invest in gold?

Gold mutual funds invest in gold bullions instead of directly in physical gold. They also invest in gold securities.

How can I invest in mutual funds?

Investing in mutual funds has never been easier. Read this article to know more. 

Do mutual funds attract more tax than gold?

Mutual fund profits are taxed in the same way as profits from gold. Both returns are categorised into short term and long-term and taxed accordingly.

Which is the best mutual fund for beginners?

New investors can consider investing in mid-cap or large-cap equity funds since these involve lower risk as compared to other fund types.

Who invests in Gold?

Many people invest in gold as a tertiary investment avenue. Besides this, new investors who do not understand the financial markets tend to lean towards gold as an investment.

 Is Gold a good long-term investment option?

Gold is a good store of value however as an investment it does not offer very high returns.

 Are mutual funds a good long-term investment option?

Yes, long-term investment in mutual funds is a great way of growing wealth.

Which is best, SIP or gold?

An investor investing in the mutual fund SIP can go long and expect to meet some big dream in the long-term." However, he said it's better to invest in Gold SIP as it is free from storage and gives almost the same returns as a physical gold bar would give.

How do I choose a gold fund?

The return of the best gold funds can even outgrow the price of the precious metal itself, creating a lucrative opportunity for investors. If an investor opts for long-term (8 years or longer) gold mutual funds, the returns received will be calculated based on the current market's gold prices.

Komal Chawla

Writer-by-chance and overthinker-by-choice, raging a war against the Pineapple-on-pizza brigade

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