Indians love gold! There is a lot of sentimental value attached to it. Gold is used in all auspicious occasions as gifts. In weddings in Tamil Nadu, gold is given to the bride by the groom during the betrothal ceremony. It is the same situation in all cultures across India. The yellow metal is even offered to the gods as a thanksgiving in temples. Investing in gold in India is, therefore, not just a monetary exercise, but an emotional one.
Usually, gold is bought as jewellery and passed on from generation to generation within the family. However, physical gold is not the only way to invest in this asset anymore. People can choose to park their money in sovereign gold bonds, gold mining stocks, gold ETFs and digital gold too.
Mutual funds, on the other hand, are also an excellent investment choice for long term investors who do not want to take too much risk. Mutual funds are a collection of various assets, such as stocks, bonds, ETFs, commodities and other mutual funds too. They are managed by professionals and are usually offer steady returns over the long term.
Which of these two assets should you invest in? Here are some pros and cons of investing in both of them.
Ease: Gold can keep its form for a very long time. It does not corrode, rust or decay. You can also buy gold easily by simply walking into a shop or buying online. It does not need a broker.
Variety: Gold can be bought as jewellery, bullion, digital gold, ETF, stocks, mutual funds and sovereign gold bonds.
Liquidity: Gold can be converted into cash very easily too. Just walk into a shop to exchange your gold for cash or do it online.
Low Returns: Gold offers very low returns when compared to, for example, stocks. The stock market offers significantly higher returns in the long term when compared to gold.
Risks: The risks of physical gold are high, because it needs to be stored safely. It is prone to loss, theft, breakage, or damage.
High cost: Gold is subject top high costs and taxation. About 10 grams of gold can run into tens of thousands of rupees. Gold is also subject to GST. If you buy jewellery, you must also pay the making and wastage charges. This makes gold a high-cost asset.
Mutual Fund Pros
Diversified: Mutual funds are a diversified asset. They can contain stocks, bonds, ETFs, other mutual funds and even commodities such as gold in them. This makes mutual funds a great choice for investors.
Low bar of entry: You can start buying mutual funds for as low as INR 500. This makes mutual funds a cheap investment opportunity and a popular one among all kinds of investors.
Professionally managed: Mutual funds are managed by professionals They will manage the assets within the fund and ensure that the returns in the fund meet a particular goal.
Mutual Fund Cons
Not Easy To Purchase: Mutual funds have to be purchased from brokers or from the institution managing the fund directly. It is not easy as purchasing gold because you cannot simply walk into a store to buy it.
Manager Efficiency: The returns in a mutual fund depend on the fund manager. If the manager is good, the returns are higher, if they are not, the returns may not be adequate.
Market Risks: Mutual funds carry market risks and have to be thoroughly research before purchasing. Since the funds contain different asset classes, the risks of all those asset classes are associated with mutual funds.
Given all these pros and cons, which asset class do you prefer? Gold or Mutual Funds.
Whichever it is, Savart has your back. Start investing today.