Mutual Funds vs Gold: Which One Should You Go For?

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In India, gold has always been a symbol of prosperity and wealth. Traditionally, gold is being used as an integral part of jewellery. In the modern era, however, gold is also taken the form of a reliable investment instrument. Mutual funds, on the other hand, are a great investment option for various reasons.

Read: Advantages of Mutual Funds: Why MFs are a Great Investment Option?

Let us analyze how investments in gold compare to that in mutual funds on the basis of various points given below:

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SN Investment in Physical Gold Mutual Funds
1MeaningGold is a precious metal which also serves as a form of investment.Mutual Fund is a financial product that operates by investing the investor’s funds in various financial instruments like equities, debts and other money market instruments.
2ManagementThe investment is made and managed at the sole discretion of the investor.The investments are managed by financial experts.
3StrategyThe investments are done by purchasing physical form of gold or buying gold ETFs (which is nothing but a type of fund). The effect is pretty much the same in both cases and hence gold investment involves no diversification.Mutual funds facilitate diversification of portfolio through investing in a variety of securities viz. equity, debt, etc.
4Risk InvolvedPhysical purchase of gold involves a risk of burglary. However, gold ETFs are free from such risks.No such risks are involved, as more or less the entire process takes place online.
5DividendsDoes not pay any dividendsMay or may not pay dividends
6VariantsThe only variants are on the basis of purity and shape (coins, bars etc.).Mutual Funds come in various forms/variants.
7LiquidityGold is an asset with a high liquidity and can be traded quite easily.Most types of mutual funds are highly liquid as well, and can be readily redeemed and converted to cash.
8Market KnowledgeKnowledge of gold prices and behavior is sufficient.Good knowledge of various factors involved in capital markets is necessary to make good investment decisions.
9StabilityGold prices have always witnessed a steady rise in the longer time frames, as the supply of physical gold is limited.Mutual Funds are mostly dependent on movements in capital markets and thus are relatively less stable.

There is no obvious choice when it comes to comparing investing in gold and mutual funds. Ideally one should consider investing a part of their savings into both of these instruments. The proportion should depend on a lot of factors like the age of the investor, his/her risk appetite, his/her financial goals, available amount of capital, investor’s knowledge of these instruments, etc.

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