Comparison of Mutual Funds with Gold and FD
Gold and FD are of utmost importance for Indian families. It is not only an investment but has its own significance. Gold is a great way to create wealth that lasts for generations. The new methods of investing are convenient and offer opportunities to earn higher returns. One such investment is mutual funds.
If we talk about FD returns, they are fixed in nature, but in comparison with other asset classes, mutual funds are one of the examples that give far better and more consistent returns than FD and Gold. Now with the advent of paper money and new-age financing, different modes of investments have come up.
Mutual funds are professionally managed financial vehicles which allow you to invest in securities and other assets. Mutual funds invest your money in a diverse mix of securities reducing the risk and maximizing returns.
Since multi-cap funds invest across companies of various sizes and sectors, they offer a diversified portfolio. This diversified approach lowers the risk for you. That’s because different sectors or parts of the market can perform differently at any given time, and this spreading out of investments across keeps the risk in control.
Exposure to all key sectors of the economy:
As these funds don’t restrict themselves to a particular market cap or sector, you get exposure to all the key sectors and companies within them that are driving the Indian economy forward. What it means is that you don’t miss out on any opportunity available in the Indian market.
Right portfolio for the prevailing market condition:
The flexibility of deciding the mix between large, mid and small-cap allows these funds to change the portfolio composition so that it is best suited for the market condition. For instance, if the mid and small-cap stocks become overvalued and it looks like that space is heading for a big space, the fund manager can move to large caps and take a defensive position.
Table 1 shows
1,00,000 was invested in the top 5 multi-cap funds, fixed deposits, and gold, and the average return of multi-cap funds is 17.87% and the average return of other asset classes is 8.39%. Multicap funds have generated 2x better returns than the other asset classes.
Source – Advisor Khoj, as on 31st December 2022. Trailing returns of Multi cap funds, Fixed deposit and Gold with their Market Capitalization. Disclaimer: Mutual funds are subject to market risks. Past performance may or may not be sustained in the future.
- There is another great new age investment product available that has capacity to give better and consistent returns than FD & Gold.
- We know gold returns are variable during year.
- FD returns also vary from year to year.
- Till now investor had very less investment options to get better & consistent returns than FD & Gold.
- You may have seen the following news on December 31, 2022. It might have attracted your attention.
Source – Dainik Bhaskar, data as on 31/12/22
The main purpose behind showing you this news article is to show the performance of asset classes, how they have performed in 2021 and 2022, and how much return has been generated.
- The price of gold is rising day by day and the thought come up to everyone if the gold is giving great returns, then why we take risk and invest in mutual funds?
As people think that investing in mutual funds are riskier than buying gold.
- The gold price as on 31st Dec,2022 was 55,000 @10 gm. Last time this price was seen on 10th Aug’2020.
- As said by Ravindra V Rao, the head of Kotak Securities Research the Gold price can cross ₹60,000 in the year 2023.
- Silver price was 68,000 as on 31st Dec 2022 and according to Kedia Outlook-2023 the silver price can be around ₹90,000 in 2023.
- In the year 2021, the SENSEX has given 22% annual returns, and on the other side, gold has given -4.22% annual returns. The actual difference in return between the two is 26.22%.
- In 2022, gold provided the highest rate of return (13.86%), outperforming all other asset classes in the race to generate high annual returns.
The other side SENSEX, also gave 5% of annual returns and came up after gold’s highest returns for the year 2022.
Note – It is Very important to note that though gold outperformed all other asset classes in year 2022, but it is not necessary that history will repeat in coming years.
CONCLUSION – Mutual funds are a popular investment among investors, as they are easy to invest in and give higher returns as compared to other traditional asset classes such as FDs or saving bank deposits. On the other hand, gold is regarded as the safest asset class, as it is not particularly risky, and it is possible to accumulate wealth without taking any risks.
Even though mutual funds are risky, they provide excellent returns over time and are beneficial in the long run.
We never say you should not hold gold in your portfolio, but to hedge, you must hold gold up to 10% of your portfolio.
Asset allocation is critical to the success of any ideal portfolio.
We will discuss asset allocation in our coming articles.