Difference Between Gold vs Mutual Fund

What is Gold Investment?

What are Mutual Funds?

Key Differences Between Gold and Mutual Funds

Gold and mutual funds are two of India's most popular investment choices. Both can help you grow your money, but the way they work is completely different. Let's compare them in detail to help you decide where your money should go:

Parameter Gold Mutual Fund
Meaning It's a tangible or digital asset where you invest by buying physical gold, gold ETFs, or Sovereign Gold Bonds. A mutual fund collects money from investors and invests it in stocks, bonds, or other assets.
Types Jewellery, coins, bars, digital gold, Gold ETFs, Sovereign Gold Bonds (SGBs). Equity funds, debt funds, hybrid funds, index funds, and ELSS (tax-saving mutual funds).
Initial Investment The price of physical gold is high due to making charges and GST. Digital gold, ETFs, and SGBs start at ₹100–₹500. It can start as low as ₹100–₹500 with a SIP or a one-time lump sum investment.
How to Invest Buy from jewellers, banks, online apps, or through stock exchanges for ETFs and SGBs. Invest directly through AMC websites, apps, mutual fund distributors, or online investment platforms.
Fees Making charges (up to 20% for jewellery), GST (3%), brokerage for ETFs, and sometimes storage costs for physical gold. Fund management charges (0.5%–2.5%), and exit load if you withdraw early from certain funds.
Options
  • Physical Gold: Bullions, Jewelleries
  • Gold monetisation scheme
  • Digital Gold: Gold Mutual Funds, Gold ETFs and Sovereign Gold Bonds
  • Company Preferences: Large-cap, Mid-cap, Small-cap, Multi-cap
  • Mode of Investment: Direct Plan, Regular Plan
  • Choice of Investment: Equity, Hybrid, Debt and Gold
Compounding No compounding. Value grows only with the gold price. Returns can grow with compounding if the fund value increases.
Trading Can sell at a jewellery shop. Rates may vary. Can buy or sell easily through online trading platforms.
Management No professional management, you handle it yourself. Managed by fund experts who track gold prices and markets.
Market Knowledge It is not required, but it helps while buying/selling. Not necessary, fund managers handle investments.
Stability More stable in the long term, less affected by market ups and downs. It can fluctuate with the market as it's linked to gold prices.
Liquidity Physical gold can be sold quickly, but may involve purity checks and charges. Digital gold and ETFs offer better, faster liquidity. Highly liquid, except for funds with lock-in periods like ELSS (3 years). Redemption is easy and hassle-free.
Returns Depends on international gold prices. No fixed income, profit made only through price rise over time. Varies with fund type. Equity funds can give 10%–15% annually over the long term, while debt funds offer stable returns.
Risk Low to moderate. Prices can be volatile in the short term but hold value in the long run. Varies by fund type. Equity funds carry higher market risk; debt and hybrid funds are relatively safer.
Performance During Market Turmoil Gold usually gains when stock markets fall or inflation rises, acting as a safe asset. Equity funds may drop during market crashes, but debt and balanced funds perform steadily.
Involvement No active management needed after purchase unless you're trading in ETFs. Regular tracking, especially for equity funds, is required to make the most of market opportunities.
Diversification Limited. Your money is tied to one commodity, which is gold. High. Mutual funds invest across multiple assets like stocks, bonds, and money markets, reducing overall risk.
Compounding No compounding benefit. Profit happens only when you sell at a higher price. Gains are reinvested, allowing your money to grow faster through compounding returns.
Tax Benefits No tax benefits except for Sovereign Gold Bonds, which offer tax-free capital gains after 8 years. Only ELSS mutual funds offer tax benefits under Section 80C (up to ₹1.5 lakh per year).

Who Should Invest in Gold?

Gold adds a level of safety to your portfolio during market fluctuations. It appeals to the investors of the given categories:

Investors Looking for Safety

Great for those who prefer low-risk options and want to preserve wealth.

People Seeking a Hedge Against Inflation

Gold protects your money when the cost of living rises.

Investors Wanting Portfolio Stability

Gold balances risk when other investments like stocks perform poorly.

People Who Prefer Physical or Tangible Assets

If you feel safer with something you can hold, gold works well.

Long-Term Holders

Best for those who can hold it for years without worrying about short-term price changes.

Who Should Invest in Mutual Funds?

Mutual funds let you grow money without managing everything yourself. They pool funds from many people and invest in gold-related assets. It is ideal for:

People with Long-Term Financial Goals

You can save for your child's education, a house or retirement by investing in a mutual fund.

Beginners in Investing

You have a fund manager to take care of decision-making and use your money wisely on your behalf.

People Looking for Diversification

Take a small investment in the portfolio and spread it around different stocks.

Salaried Individuals

If you get a monthly salary and wish to save a part of it, mutual funds allow you to invest small amounts regularly through SIP.

Investors with Different Risk Levels

You have a choice of lower-risk returns on debt funds, medium-risk (balanced funds) returns, or even higher-risk returns with equity funds.

Tax-Saving Investors

You can invest in tax-saving mutual funds like equity-linked savings schemes (ELSS).

How to Invest in Gold?

There are several ways to invest in gold besides buying jewellery. Here is how you can do it:

Option How It Works
Gold Jewellery Buy necklaces, bangles, coins, or bars from jewellers.
Gold Coins Purchase certified coins or bars from banks or jewellers.
Gold ETFs Buy electronically through stock exchanges like NSE/BSE with a demat account.
Sovereign Gold Bonds Government bonds linked to the gold price, plus 2.5% yearly interest.
Digital Gold Buy gold online through apps like PhonePe, Paytm, and Google Pay.

How to Invest in Mutual Funds?

Mutual funds collect money from diverse people and invest these funds into stocks, bonds, or other investments. Here are simple steps to invest in mutual funds:

Step 1

Identify Your Goal: Decide the reason for your investment, like retirement, buying a house, or saving for your future. Your objective will determine the type of mutual fund to choose.

Step 2

Choose the Type of Mutual Fund:
  • Equity Mutual Funds: Typically used for investing with the view of long-term growth.
  • Debt Mutual Funds: Invest in government bonds or company debentures. Useful for obtaining stable returns with lower levels of risk.
  • Hybrid Mutual Funds: They contain both equity and debt investments. Suitable for balanced risk and return.

Step 3

Open an Investment Account: You can invest through a mutual fund company website, banks, online brokers, or investment apps. Basic documentation is required, such as your PAN card, Aadhaar card, and Bank Account.

Step 4

Complete KYC: KYC is a one-time process for which you submit your proof of ID, proof of address, and a photo. KYC is compulsory for mutual fund investments in India.

Step 5

Track Your Investment: Once you make the investment, you need to review your fund's performance regularly.

Which is Better Between Gold and Mutual Funds?

FAQs about Gold vs Mutual Fund

What is gold investment?

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Gold investing means using your money to purchase or invest in different forms of gold, such as physical gold, coins, bars, jewellery, or digital gold. People invest in gold because its value holds up well in economic hardship and provides a safer haven investment when there is a downturn or difficulty in other markets.

What is a mutual fund?

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A mutual fund is an investment vehicle that collects money from various investors and buys stocks, bonds, or other assets. A fund manager performs the investment transactions. The purpose of a mutual fund is to grow individuals' wealth over time based on the market's performance.

What is the main difference between gold and mutual funds?

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The difference is that gold is a physical or digital asset purchased to store value. A mutual fund is an investment option within the market that aims for a financial return. A mutual fund either buys stocks, bonds, or securities. Gold and mutual fund investments have different return and risk profiles.

Which gives higher returns: gold or mutual funds?

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Mutual funds, specifically equity-based ones, have historically produced greater long-term returns than gold. Gold increases its price more slowly than mutual funds and generally only increases during uncertain times.

Is gold a safer investment than mutual funds?

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Yes, gold is considered a better investment option when markets are weak or experiencing inflation. Mutual funds have risk due to markets, but have higher potential growth when looking to accumulate wealth over the long term.

Can mutual funds help beat inflation better than gold?

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Yes, all equity mutual funds will give returns that will outpace inflation. Gold will maintain its value but will not appreciate significantly more than inflation over the long term.

Which is better: actively managed funds or passively managed funds?

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Actively managed funds aim to outperform or beat the market by actively picking stocks. Passive funds are managed to mimic a market index. Passive funds charge lower fees and tend to have steadier returns. Active funds can also give higher returns, but also involve more risk.

Which is more liquid: gold or mutual funds?

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Both are liquid. Mutual funds can be sold online with minimal hassle, but you must sell physical gold to a dealer or jeweller, where a little more effort is required.

Is gold taxed differently from mutual funds?

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Yes, gold is subject to capital gains tax after three years of holding. Mutual funds are taxed differently depending on the type of fund and how long the fund has been held; equity funds and debt funds are taxed differently as well.

Can gold give steady returns like mutual funds?

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No, the price of gold rises while the prices in the stock market do not fluctuate consistently. However, gold still does not return steadily or on any sort of regular basis. Mutual funds provide investors with a better chance for consistent long-term growth through Systematic Investment Plans (SIPs) and diversification.

Which is better for short-term investment: gold or mutual funds?

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Gold is safer for a short duration while markets are volatile. Debt mutual funds are good for short-term investments. However, equity funds work best in the long term.

Do mutual funds require more market knowledge than gold?

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Yes, investments like SIPs and index funds in mutual funds need basic awareness. Gold is simpler since its price depends mostly on global demand and supply.

Do mutual funds pay regular income like gold jewellery rental?

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No, mutual funds do not provide fixed income, such as when renting out gold jewellery. Some mutual funds provide returns by providing dividends or income by selling units for profit. However, this is not guaranteed. The income depends on the market performance and the fund type.

Can I use gold or mutual funds as loan collateral?

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Yes, gold loans are very easy to procure. Some banks do accept mutual fund units as collateral. However, the procedure takes longer than a gold loan.

Should I invest in both gold and mutual funds?

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Most people invest in both to give a balance of protection and growth. The protection comes from gold, and mutual funds offer good growth. The combination of the two relies on your risk tolerance and financial goals.

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