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Difference Between Gold vs Mutual Fund

Buying gold has always been more than a tradition. It’s a sign of security and good fortune. But times are changing. Alongside gold bangles and coins, people invest in mutual funds today, and smart investors look for ways to grow their money.
Mutual funds are professionally managed funds where an Asset Management Company (AMC) pools funds from several small investors to invest in stocks, bonds, or other assets. Gold is the real metal in the form of coins, bars, or jewellery.
If you are confused about whether to stick with trusted gold or try mutual funds for better returns, understanding the difference between gold and mutual funds is crucial. This guide will help you choose what best suits your goals.
Table of Contents
What is Gold Investment?
Investing in gold involves purchasing it to safeguard and increase one's wealth. People purchase gold in various forms, including ornaments, bullion, and digital gold. It is recognised as a safe approach to asset allocation as it retains value during economic downturns or inflationary periods. Gold performs better when other assets undergo depreciation.
However, holders of gold do not receive interest, rent, or dividends. You make money only when the price rises, and you sell it. Also, gold prices can jump or drop suddenly in the short term.
What are Mutual Funds?
Mutual funds are simple, smart investment tools managed by expert fund managers. An Asset Management Company (AMC) collects and invests money from many investors in stocks, bonds, or other assets. This spreads your money across different places, reducing risk and increasing growth chances.
One significant advantage is diversification; your money isn't tied to one asset. Mutual funds grow your money through compounding, where your returns keep earning more returns over time. You can start with small amounts through SIPs.
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:
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:
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
- 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?
Why is Gold Better?
- Gold keeps its value, even during inflation.
- It has a history of holding value during economic or political distress.
- Gold keeps its long-term value with very little depreciation.
- Gold adds to your legitimate investments as it lessens your overall risk.
- It is not tied to the credit or performance of a third party.
- Strong and steady international demand is keeping the price moving higher and reaching extreme levels, helping to stabilise its value.
Why are Mutual Funds Better?
You can start investing with small sums, even ₹500, in India.
- A fund manager manages your money, so you do not have to worry about tracking stocks constantly.
- Your money is spread across many stocks, bonds, or other assets, which reduces the risk.
- Mutual funds offer better levels of returns over the long term.
- Some mutual funds (like ELSS) provide a deduction when you file your taxes under Section 80C.
- Mutual funds are regulated by SEBI, which is a safe and transparent way to invest.
Gold and mutual funds serve mostly distinct purposes in personal finance. Gold is a reliable store of value as it has time-tested value, whereas mutual funds primarily provide growth opportunities based on the market. If you understand the differences, risks, and benefits of physical gold and mutual funds, you can decide what avenue fits your financial goals.
Disclaimer: The information provided on this website is for general informational purposes only and should not be construed as financial, investment, or legal advice. While we strive to provide accurate and up-to-date content, we do not guarantee the completeness, reliability, or suitability of the information for your specific needs.
We do not promote or endorse any financial product or service mentioned in these articles. Readers are advised to conduct their own research, consult with financial experts, and make informed decisions based on their unique financial circumstances. Any reliance you place on the information provided here is strictly at your own risk.
FAQs about Gold vs Mutual Fund
What is gold investment?
What is a mutual fund?
What is the main difference between gold and mutual funds?
Which gives higher returns: gold or mutual funds?
Is gold a safer investment than mutual funds?
Can mutual funds help beat inflation better than gold?
Which is better: actively managed funds or passively managed funds?
Which is more liquid: gold or mutual funds?
Is gold taxed differently from mutual funds?
Can gold give steady returns like mutual funds?
Which is better for short-term investment: gold or mutual funds?
Do mutual funds require more market knowledge than gold?
Do mutual funds pay regular income like gold jewellery rental?
Can I use gold or mutual funds as loan collateral?
Should I invest in both gold and mutual funds?
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