Investment Plans

Investment Battle: Gold Vs Mutual Funds

Dec 01, 2021

Investing in gold is an age-old custom among the Indians. There are many ways for wealth creation, but investment through different instruments and investment plans is one of the best ways. Here we will be discussing the two of the instruments: Gold and Mutual Funds (MF).

Gold investment practice not only includes the back-up support option during uncertain times but also believed to cope with inflation. Indians possess a deep sense of emotional attachment with the shiny golden metal.

But the changing financial scenario has popularised the investment in mutual funds. One of the most highlighting factors for such popularity is the prospect of satisfactory returns, especially in the long-run. The other contributing factors include the ease of investment, tax-efficiency, risk-mitigation factor.

The contemporary financial scenario reveals that ideal investment should be across all the asset classes. This ensures better protection during unprecedented difficulties in times of economic uncertainty and market volatility. As per the opinions of the financial experts, it is best to divide the funds in investing both in gold as well as in mutual funds. 

Depending on the risk appetite of the investor along with the financial targets, liquidity requirements and expectations, the percentage of such investment needs to be carefully calculated.

Setting goals

One of the key concepts of successful investments is to set the financial aim clearly. Be it for the home down payment, the children’s educational needs, a wedding expense or creating a retirement fund, the target should be crystal clear before the beginning of the investment. The perfect balance of the time frame and the efficiency of the investment tools will help to succeed.

Both gold and mutual fund investments are good investment options but they cater to fulfil different types of needs. Gold investment is stable but offers low returns in respect of long-term investment. On the other hand, the mutual funds generate better returns with more assuring prospects in the long-run, involving medium to high risks depending on the particular plan.

Risks and rewards

This is the most crucial factor to decide the mode of investment. Inherited gold possesses sentimental and emotional value, that is immeasurable in monetary terms. This creates difficulty in liquidation. Physical gold investments come with the concerns of purity and risks of storage whereas mutual fund investments are exposed to market risks. Digital gold investments do not have the storage or purity concern hassle, but it offers a comparatively low return to meet long-term requirements.

High-rated equity mutual fund schemes possess prospective for better returns in the long run. In that respect, digital gold investment is also a smart investment strategy, considering the new records of the gold value in the current times. 

One thing that must be considered is that the volatility and the changing market situations of both gold and mutual funds depend on multiple factors that are external, domestic as well as geopolitical. The selection of any one of these strategies depends on the individual investor’s risk appetite, financial aim, time stipulation to fulfil those aims and of course, the current balance of the portfolio.

Investment methods

For maximum benefits, it is ideal to invest in both these mediums. There are several ways that will exercise smart investment strategies in both gold and mutual funds. Mutual fund investments offer SIP modules for investment with the lump-sum method, whereas gold investment can be done through both offline as well as online modes.

Lump-sum investment can be done in both mutual funds and gold, but in that case, the risk of loss is considerably higher, during a market crash. Perfect tuning of timing is the key to success while making this sort of investment.

Mutual fund investments offer SIP modules with an investment value of a meagre INR 500. This SIP method inculcates the habit to save and cut down reckless expenditure. Moreover, short-term market volatility can be absorbed better through this sort of investment strategy. 

The general trend of the Indian investors reveals that they prefer to invest in actual gold. But with this, issues of storage and purity becomes a matter of concern. Moreover, the exorbitant GST could result in eating up most of the profits from investment resulting in lower returns. In this respect, gold ETFs are considered to be a smarter investment option. It offers easy liquidity but has no tax benefits. 

Investment limit

The investment exposure to any of these tools depends on the age of the investor, the risk appetite, the risk potential, the time frame and of course, the financial goal. Any successful investment option must cater to all these needs and requires a certain amount of diversification. This allows better risk coverage with good returns in the long run. Financially speaking, the ideal percentage of gold investment should range between 5%-10% of the entire fund. This is because, in the long-run, the gold investment tends to touch a flat curve. 


Mutual fund investments offer the efficiency of both the equity funds as well as the debt funds. Depending on the requirements, the investor might decide the tenure of investments. Gold and mutual fund investments come with their individual assets of pros and cons. Careful consideration of all the relevant factors is essential for acquiring the maximum benefits. 

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