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.
Let us analyze how investments in gold compare to that in mutual funds on the basis of various points given below:
|SN||Investment in Physical Gold||Mutual Funds|
|1||Meaning||Gold 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.|
|2||Management||The investment is made and managed at the sole discretion of the investor.||The investments are managed by financial experts.|
|3||Strategy||The 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.|
|4||Risk Involved||Physical 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.|
|5||Dividends||Does not pay any dividends||May or may not pay dividends|
|6||Variants||The only variants are on the basis of purity and shape (coins, bars etc.).||Mutual Funds come in various forms/variants.|
|7||Liquidity||Gold 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.|
|8||Market Knowledge||Knowledge of gold prices and behavior is sufficient.||Good knowledge of various factors involved in capital markets is necessary to make good investment decisions.|
|9||Stability||Gold 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.