Mutual fund vs Gold: Which is Better Investment for Diwali?
Amidst the festival system, where Diwali is around the corner and consumerism is on peak, television commercials, newspapers, hoardings, internet all are full of advertisements to attract potential customers for buying automobiles, electronics, gadgets and what not. There are lucrative offers and discounts across all the sectors and special finance schemes providing the facility of buy now pay later has made it difficult to resist the temptation.
But is it a wise decision to spend on all these consumer items, most of which are depreciating assets and tend to lose their value in some span of time. Also, it has been observed that overspending is very common during such times which affect your financial balance very badly. Alternatively, you can use this festive season as an opportunity to secure your future by investing. You can stop reckless spending and save yourself from hefty credit card bills and invest a part of that amount.
The most common investment instrument opted by a majority of people are mutual funds but during festive season Gold overtakes it to be the most preferred investment option, at least for Indians. Now, the confusion arises, where should you invest your money this Diwali? Mutual funds or Gold, which one is the perfect option for you and why.
The confusion of investing in Gold and Mutual Funds has been eternal after the outbreak of Covid-19 pandemic in India in 2020. The economy has been in doldrums for most part of this year and as a result people have faced severe financial losses. Layoffs, unemployment, shutting down of companies and business sectors experiencing an all time low, 2020 has seen it all.
Mutual fund vs Gold: Which is Better Investment for Diwali?
- Investment in Gold
- Investment in Mutual Funds
- Investment Goal
- Short Term Investments
- Long Term Investments
Let us discuss about investment in Mutual Funds and Gold, this festive season and also find out where should you invest your money.
Investment in Gold
Investments in physical gold in the form of gold coins, bars and jewelry are on boom during the festive season. In the Hindu mythology, Diwali is considered to be one of the most auspicious times of the year for investing in Gold and thus, you can spot well decorated Jewelry showrooms and outlets attracting consumers. But investing in physical gold also comes with risks, the biggest one being the risk of storage because physical gold is prone to theft and burglary. Investing in jewelry also attracts additional charge sin the form of making charges which can be up to 20 per cent of the price of Gold depending on the jeweler and design.
Alternatively, investments in gold can be done in the form of E-gold, Gold Exchange Traded Funds or Sovereign Gold Bonds. Sovereign Gold bonds are a preferred way of investing in Gold because they provide the investor with the benefits of interest along with price appreciation.
There has been a record surge of over 26 per cent in the prices of Gold in this year. Gold has crossed the level of 56,000 for the first time ever in history. This makes Gold a potential investment instrument during this festive season. Also, gold funds are considered to have negligible credit and default risks.
Investment in Mutual Funds
Mutual funds are a very broad asset class and have a very broad classification. There are various type of funds available in the market as per your need and this probably makes mutual funds suitable for all. This makes them one of the most preferred investment instruments available in the market. Some of the common mutual funds include regular or direct funds, equity or debt funds, Hybrid funds etc. Based on your investment there are commonly two type of mutual funds schemes, lumpsum plan and Systematic Investment Plan (SIP).
Investment in mutual funds can be a good investment plan provided you choose a fund wisely. You can also make a short-term investment in some of the mutual funds like debt funds. However, mutual funds provide you with the benefits of compounding if you plan to keep your investment for the long term.
Market risks have a direct impact on Mutual funds and thus it is very important to understand all the insights about your fund before investing. It is important to invest in line with your risk profile analysis to protect yourself from financial losses beyond your financial limits.
Investment Goal
Your investment instrument depends largely on your investment horizon and thus it is very important to determine the investment horizon before planning any investment. Your investment horizon can depend on your capital as well as your investment goals. Based on your investment horizon, investments can be broadly classified into short term investments and long-term investments. Let us discuss about the preferred investment instrument for you based on your investment horizon.
Short Term Investments: If you are planning a short-term investment, which means that you will need access to your invested capital soon, investing in Gold can prove out to be a good opportunity for you. The reason for this being the current volatility of the market. The markets are highly volatile these days and are expected to remain the same with severe ups and downs considering the prevailing Covid-19 as well as the upcoming US elections.
Gold is trading at all time high prices in 2020. Gold has crossed the level of 56,000 and is expected to show a hike of 10 per cent to 15 per cent in the upcoming few months. Gold prices are expected to touch the level of 65k because Diwali season had always been beneficial for Gold. The prices may decline thereafter, therefore Gold can prove out to be the perfect short-term investment option during this festive season.
Long Term Investment: If you are aiming at long term investment goals and therefore planning a long-term investment for few years, mutual funds can be the best bet for you. Equity funds can be the prefect investment instrument in the current scenario provided that the markets tend to show a sharp rise after any economic crisis. This not only helps you in beating the inflation over the years but also provides you with excellent returns.
The current volatility of the market may create short term losses for you, but it is expected that over a span of few years, the gains will easily overshadow all the losses. Therefore, if you are planning a long-term investment this Diwali, mutual funds should be the preferred investment instrument for you.
Instead of recklessly spending your money this festive season it will be a sensible decision to invest some part of it for the future. You should start investing early because the earlier you start the more you get. People often wait for accumulating a large corpus for investing but that is not a correct strategy. A consistent investment with small amounts can also yield you better results. If you are still confused, a certified investment advisor can help you plan your investments effectively.
Author
CapitalVia
Pioneer in Investment Advisor
