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Gold Investment v/s Mutual Funds: Which One to Choose?
9-July-2021 |
India’s love for gold is evident by the fact that it is the top consumer of yellow metal globally. Historically, Greeks, Romans, Ottomans, Aryans, Egyptians, and Mayans are known to have fought over it. As part of our culture and traditions, we buy gold on various auspicious occasions. As a keeper of value, gold investment has, time and again, rescued households in times of need.
In today’s world, when you look at this asset from an investment plan perspective, it is mainly to diversify your portfolio, thereby reducing the overall portfolio risk. It is also a good hedge against inflation and various other risks. A healthy mix of assets allocated to your portfolio will lead to optimum goal-based planning. Assets such as insurance, mutual funds (equity or debt), gold, real estate, liquid funds, etc., all constitute a portfolio. Thus the question, should you invest in gold or mutual funds? Let us explore the pros and cons of these two assets.
Invest in Gold or Mutual Funds
While both the assets are recommended to be part of one’s portfolio as they both provide complementary benefits, understanding them will help you evaluate the proportion of your investment in these assets as per your requirement.
Parameter |
Gold |
Mutual Funds |
What is it? |
A limited quantity of non-reactive metal found in nature. Mined and purified for its commercial value and usage in jewelry creation. |
An investment product that offers exposure to a basket of equity or debt securities thereby offering the benefits of diversification. |
Type |
Gold is available as a physical commodity or in digital form. The other difference is in the purity, gold is usually available as 12k, 18k, 24k . |
There are several types of mutual funds all offering market-linked returns. Some are riskier than others. |
How can you invest in it? |
You can invest in gold as a physical commodity, gold MF, gold ETF, or as a sovereign gold bond. |
You can invest in mutual funds by completing e-KYC. It can be bought without a Demat account. |
Benefits |
|
|
Fee |
Gold investing as such does not usually attract fees. Even the expense ratio of gold ETF or MF is reasonable. However, gold in the form of jewellery/ornament has making charges. |
Mutual funds are actively managed and attract a management fees. |
Liquidity |
Fairly liquid, you can liquidate gold at short notice. |
Most mutual funds are liquid, and you can liquidate them within 2-3 days. |
Investor Involvement |
Investors don't need constant watch over gold investment. These are typically long-term investments. |
Since mutual funds are market-linked, keeping an eye on markets is crucial to benefit from market cycles.
Mutual fund managers are experts who actively manage these funds. |
Gold investment or mutual funds allocation depends on the risk tolerance of the investor. It is usually true that gold does not offer equity-like returns. Therefore, as an investor mutual funds offer better returns in the long term as they are market-linked. But given that gold does not lose its value over time, a small portion of your portfolio can be in gold. In times of crisis, this small portion can provide a good hedge and support the overall portfolio.
Tata AIA Life Insurance offers the best of both worlds, an insurance plan which helps you save and provides attractive market-linked returns. The Smart Sampoorna Raksha (UIN- 110L156V02) life insurance plan is one of the best investment plans in India, offering an attractive option for investors looking to add a market-linked insurance policy to their portfolio. Some of the features of this plan are:
Freedom to choose the premium frequency
Option to choose from 11 funds
Easy switching between funds based on market conditions
Eligible for tax* deductions
Additional riders# available
People Also Ask
Is it better to invest in gold or mutual funds?
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L&C/Advt/2021/Jul/1126
