What’s Better: Gold or Mutual Funds?

What’s Better: Gold or Mutual Funds?

By Blogtrepreneur

In our country, gold enjoys a special place in the hearts of people. This’s why people opt for gold instead of mutual funds. Without this yellow metal, any wedding or festival is thought to be incomplete. Gold is considered auspicious and people tend to purchase gold ornaments on various occasions. Gold jewelry is handed over to the next generation with a feeling of pride. If you want to know the gold price, just type gold price today in your browser’s search bar and you will find various results.

Today’s generation is different when compared to their parents. They like to spend their hard-earned money on beautiful experiences and valuable assets instead of spending it on jewelry and storing it in their bank’s locker.

This is why mutual funds are gaining popularity in India. Equity mutual funds (including Equity Linked Savings Schemes, ELSS) got the highest inflow of Rs. 20,362 crores in the month of August 2017. This is over 200 percent increase in its yearly inflow. At the end of August 2017, the number of Mutual Fund portfolios was 6 crores.

If these facts and figures have not convinced you that people have started giving due importance to mutual funds, then nothing will.

Rural Vs. Urban Divide

While the urban population might resort to mutual funds, the rural population still has its apprehensions when it comes to investing in mutual funds. Nonetheless, things are slowly and steadily changing. Investors residing in towns away from the top cities sums up for approximately 18 percent of the mutual fund’s total Assets Under Management (AUM). Isn’t that a breath of fresh air?

Now, the question arises- do mutual funds score well over gold?

Well, there are a few points that give weightage to mutual funds. Let us explore these points.

The Returns

As per Bloomberg data, the shining metal has fetched a yearly return of 5.5 percent in the past decade. It’s way lower than the returns earned by debt Mutual Funds. Now, coming to gold’s performance in the past 5 years, it wasn’t at all great as its returns were a negative 10%.

Now, let’s focus on the gold’s performance in 2017. As per the data below, gold’s performance has been super volatile, and it gave 7 percent year-to-date return which is unexpectedly low.

Why didn’t Gold Perform Great this Year?

As per the World Gold Council’s data, gold’s demand for investment purposes decreased by 14 percent in the first six months of 2017. This period witnessed the lowest demand in 8 years. This is the reason why gold rates have not hiked much in the recent years.

Also, the yellow metal’s rates are determined on the basis of a variety of factors other than the principle of demand and supply. The main factors that come into play in determining gold rates are: the performance of the Indian rupee, geopolitical relations, and demand of the American dollar & its performance. This is why gold prices can’t be predicted. We can’t predict gold rate in Delhi, or any other city for that matter, beforehand. That is to say, predicting anything about gold prices for the subsequent months is not possible.

Mutual Funds’ Performance

The best performing mutual fund of equity class has earned an annual return of more than 30 percent in the last 5 years. On an average, the yearly return of equity mutual funds was 25 percent for the last 5 years.

Debt Funds’ Performance

On an average, the best debt fund has earned the returns of 11.6 percent in the last 5 years. The average for this category is 8.77 percent. These returns are way better than the returns earned by gold.

Here’s a table that lists a few of the top performing mutual funds.

Fund Name Category Annualized 3 Years Return Annualized 5 Years Return
ICICI Prudential Long-Term Fund Debt 11.66% 11.63%
SBI Small & Midcap Fund Equity 33.53% 29.18%
Tata Retirement Savings Fund Hybrid 19.84% 17.89%
Axis Long Term Equity Fund Tax Saving 22.32% 14.95%

What about Liquidity?

Whenever you purchase an asset, it should have the potential to be sold quickly for a higher selling price than its buying price. Unfortunately, this isn’t the case with gold.

What people don’t understand is that when gold jewelry is crafted, the gold so used loses its purity. At the time of selling, the jeweler decides its value. Same stands true while exchanging jewelry. Also, buying gold jewelry is for consumption. From an investment point of view, gold jewelry is not as valuable.

Parting Words

You don’t have to worry about the storage of your mutual funds. They come in an electronic form, so their safety is the last thing you will be worried about. When it comes to storing gold, you need to search for a bank locker and pay high locker charges. It’s safe to say that mutual funds offer ease of investment, good liquidity, and come with zero storage concerns.

It’s the high time to give mutual fund investments a shot. You can start with a basic amount and see how it works out for you. With mutual funds, your long-term financial goals can be achieved easily. If you are a beginner, read about mutual funds and consult a few mutual funds specialists before making any investment.

The post What’s Better: Gold or Mutual Funds? appeared first on Blogtrepreneur – For Busy Entrepreneurs.

      

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