Gold vs Mutual Fund

The key difference between gold and mutual funds is that mutual funds pool investors' money to buy securities, while gold is a commodity. Mutual fund prices depend on securities' market performance.
Gold vs Mutual Funds
3 min
12-June-2024

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:

  1. You are looking for a traditional and secure investment that retains value during economic downturns
  2. You want to diversify your investment portfolio beyond stocks and bonds
  3. You seek an investment that has the potential to hedge against inflation
  4. You prefer an asset that can be equally liquidated
  5. You have a lower tolerance for risk
  6. You seek passive investment options

Who should invest in mutual funds?

Mutual funds may be a better choice for your portfolio if:

  1. You are seeking higher potential returns through diversified investments
  2. You want your portfolio to be professionally managed
  3. You prefer some degree of liquidity in your investments
  4. You are interested in a range of investment options to suit different risk profiles
  5. You want tax benefits to reduce your tax liability
  6. 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.

Frequently asked questions

Which is a better investment option: gold or mutual funds?

Gold may be a better option for risk-averse investors. However, mutual funds may be suitable for more aggressive investors who are willing to take higher risks to earn market-linked returns.

Is it better to invest in stocks or gold?

That depends entirely on your investment goals, risk tolerance, investment horizon and budget. You could also diversify your portfolio to include both stocks and gold.

Which is a better investment option: mutual funds or gold ETFs?

Gold ETFs can be redeemed more easily and may be more affordable because they do not carry exit loads. However, the choice between mutual funds and gold ETFs depends on your financial goals and risk profile.

What is the average 20-year rate of return from gold investments?

As of December 2023, gold investments gave an average return of 11.20% over the past 20 years.

Which is a better investment option: physical gold or digital gold?

Digital gold offers some additional benefits like increased security, ease of storage and reduced storage costs.

Is gold suitable for long-term investments?

Yes, gold may be a beneficial long-term investment in India if the price of the precious metal increases steeply over the investment tenure.

Are mutual funds good for long-term investments?

Depending on the market performance, mutual funds may be a suitable way to create wealth over the long term.

Is a SIP in an equity mutual fund better than investing in gold?

That depends entirely on your risk tolerance levels, investment goals and overall timeline. However, it is advisable to diversify your portfolio to include both investments if possible.

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Disclaimer

Bajaj Finance Limited (“BFL”) is an NBFC offering loans, deposits and third-party wealth management products.

The information contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. 

This information should not be relied upon as the sole basis for any investment decisions. Hence, User is advised to independently exercise diligence by verifying complete information, including by consulting independent financial experts, if any, and the investor shall be the sole owner of the decision taken, if any, about suitability of the same.