Being an emblem of prosperity and good luck, gold has remained an integral part of Indian society. Apart from its use in jewelry, gold is also known as a reliable instrument for investment purposes.
The investment in gold is done in various forms, namely gold coins and bars, Gold Exchange Traded Fund (ETF), jewelry, and equity-based gold funds. Usually, investing five to ten percent of the total assets in gold is considered feasible.
Advantages of Gold Investment
The primary benefit of investing in gold is that it is considered one of the safest options, especially during the economic turndown.
It can, basically, act as a high-quality, liquid asset when all the other assets may result in losses. A steady rise in gold prices is always witnessed, as there is a limited supply of this commodity in the world.
As the supply of gold is unable to match with its rising demand, the investor can be sure that its price will be elevated. With multiple variants related to gold investment in the present scenario, it has become simpler to reap benefits from this practice.
Disadvantages of Gold Investment
Unlike mutual funds or real estate, gold investment does not offer a regular income. Talking about the Gold ETF, it may be a tad costlier than physical gold due to brokerage and management fees linked to it.
Also, the prices of gold are controlled by the international market, which means a major global movement will result in the fluctuation of the gold prices. Another major disadvantage is that the gold investment does not offer any tax benefits on your income.
Mutual Fund Investments
Being associated with numerous benefits, mutual funds have gained traction in India in recent years. A mutual fund can be simply defined as an investment scheme that allows the investors to pool their money into a single professionally managed investment.
In this practice, an asset management company makes an investment in securities like bonds, stocks, and other assets on behalf of the group of investors.
Advantages of Mutual Fund Investments
The very first advice you will receive from an experienced investor is to diversify your investments. And by investing in mutual funds, you can be sure that your money is invested in multiple assets.
This ensures that even if there is a loss in investment, it can be handled by the gain from the other. Another major perk is that the funds are handled by experienced professionals.
It is like having a full-time manager to handle and analyze investments without spending in excess. An investor is also able to redeem the value of the units at any point in time.
Disadvantages of Mutual Fund Investments
The popular disclaimer “Mutual Fund Investments are subject to market risks. Please read the offer document before investing” reflects how investing in mutual is not free of risks.
As the investment portfolio is handled by another individual, chances of losses may increase if s/he is not experienced enough. The investors have to pay management fees to the companies or investment managers handling the funds, thereby decreasing the profit margins.
|Mutual Funds||Gold Investments|
|Definition||It is a financial product that operates by making an investment in multiple financial instruments by an asset management company.||It is a form of investment in which the returns are calculated on the basis of the current value of the physical gold.|
|Management||The investments are handled by financial experts.||The investor is responsible for handling and making decisions.|
|Strategy||The investment is done through multiple types of securities, like debts and equities, thereby diversifying the portfolio.||The investment is done via purchasing a physical form of gold or gold ETF. No diversification is involved.|
|Risks||No risks involved, as the process takes place online.||Chances of gold getting stolen persist in the case of a physical purchase.|
|Variants||There is a substantial variation on the basis of the type of funds.||Only the difference is on the basis of the purity of gold, that is 22 carats or 24 carats.|
|Liquidity||High liquidity||High liquidity|
|The cost of investment||Affordable as compared to gold investment. The practice can be started with as little as Rs. 1000.||With prices rising on a regular basis, the minimum cost of investments is a bit high.|
|Market knowledge||Detailed market knowledge is essential to expand profits and minimize risks.||Knowledge of gold prices is sufficient|
|Returns||Both bull and bear financial outlook are associated with it, which ensures good returns to the individuals||It doesn’t pay dividends.|
Considering an array of pros and cons linked to the gold and mutual funds in India, choosing the ideal option is a difficult task. Before investing in either of these assets, it becomes crucial to consider factors like the ability to handle risks, capital in hand, and knowledge related to these instruments. It is advisable to make an investment in both of these assets by carefully dividing the funds.