Gold vs Mutual Fund: Which Investment is Better in 2025?

6 Mins

Gold investment is among the most preferred assets among Indians. For centuries, Indians have been investing in gold in one form or another. Be it as an investment as cold coins or as ornaments. Gold is part of everyone’s assets. Furthermore, investors can now invest in gold in small amounts with digital gold. On the other hand, mutual funds are market-linked instruments that invest across a basket of securities (equity and debt). Also, these funds can generate significant returns for the investors in the long term. This article highlights key differences between gold and mutual funds.

Difference Between Gold and Mutual Fund

Basis of Difference	Gold	Mutual Fund
Meaning	Gold is a precious metal found in nature. The metal is mined and purified for its commercial value and usage in jewellery.	An investment instrument that offers exposure to a basket of securities (equity and debt). Thus, offering the benefit of diversification.
Types	Physical and Digital Gold	Equity, Debt, Hybrid, and Gold
Options	Physical Gold: Bullions, jewellery, gold monetisation scheme. Digital Gold: Gold Mutual Funds, ETFs, Sovereign Gold Bonds	Equity: Large-cap, mid-cap, small-cap, multi-cap, value funds, etc. Debt: Liquid, ultra-short-term, credit risk funds, etc. Mode of Investment: Regular Plan and Direct Plan Mode of Management: Actively Managed Funds and Passively Managed Funds
Initial Investment	Investing in physical gold might cost thousands of rupees while investing in digital gold can be done for as little as INR 100.	Investing in mutual funds can be done through a lump sum or SIP route. SIPs help you invest small amounts regularly. You can start your mutual fund investments with as low as INR 500.
How to Invest?	You can invest in physical gold (commodity), a gold money mutual fund, a gold exchange-traded fund, or a sovereign gold bond.	By completing e-KYC, you can invest in mutual funds. It is possible to purchase it without having a demat account. You can buy fund units through online platforms, distributors, and asset management companies.
Benefits	Provides stable returns over the long term.If you invest in sovereign gold bonds, the government pays you interest. There is no additional benefit for any other sort of gold investing.	You are entitled to receive dividends when corporations declare them. Since the securities in the fund portfolio are volatile, they can benefit from market fluctuations. Riskier than gold; however, they can generate greater returns.
Fees	Generally, gold investing does not incur any expenses. Gold ETFs and mutual funds have an expense ratio that isn’t usually very high. However, gold in the form of jewellery or ornaments has making charges.	Actively and passively managed mutual funds charge fund management fees that are usually part of the expense ratio. However, actively managed funds have a higher fee than passively managed funds.
Liquidity	Highly liquid.	Highly liquid, you can liquidate your mutual fund investments within 2 to 3 days.
Returns	In the long run, gold has consistently given returns of up to 10% -13% p.a.	Mutual fund returns vary according to the type of fund.However, when the index is used as a benchmark, mutual funds have historically generated returns of between 10% and 12% annually. Few funds have even given 15% -18% returns every year.
Risk	Gold is one of the least risky assets.	Mutual funds are market linked instruments. They are riskier than gold investments. Nevertheless, mutual funds are less volatile than direct stock market investments because experienced fund managers professionally manage them.
Performance During Market Turmoil	Gold has performed well during the crisis. Typically, the stock market declines during a crisis, prompting investors to seek out safer investments.As a result, people invest in gold, and as demand for gold increases, its value climbs as well.	During a market turmoil, the stock market takes a hit. As a result, the NAV of a fund will also witness a decline. However, this impact is not for long. With market corrections, the value of the fund recovers, and you’ll be able to generate returns.
Involvement	Investors are not required to monitor their gold holdings constantly. Typically, these are long-term investments.	Mutual fund managers are professionals who manage your investments for you. Since mutual funds are market-linked, it is critical to monitor markets to benefit from market movements.
Diversification	Gold investments help in overall portfolio diversification. They are good schemes that help in hedging against inflation.	Inherently mutual funds offer diversification as they invest across a basket of securities. Holding 2-3 funds gives excellent diversification to your portfolio.
Compounding	Investing in gold doesn’t offer compounding benefits. Since gold doesn’t yield interest or dividends, nothing gets reinvested.	When it comes to compounding, mutual funds are one of the preferred investing options.In the long run, investing in ‘Growth Funds’ yields good results from compounding.
Tax Benefits	Except for sovereign gold bonds and gold monetisation schemes, gold investing does not typically provide tax benefits.	Equity Linked Savings Schemes (ELSS) funds are the only type of mutual funds whose investments qualify for tax deduction under Section 80C of the Income Tax Act, 1961.

Who Should Invest in Gold?

Gold’s worth rarely depreciates, despite the fact that it does not produce exponentially high returns. As a result, most investors consider it a low-risk investment. It’s also a physical asset that can be turned into gold jewellery, coins, and biscuits, among other things. Moreover, its purity can be verified, and its value is universally recognised. As a result, gold is an excellent investment whose value has the potential to appreciate in the future. It’s also an asset that can be quickly liquidated in an emergency. Furthermore, it is a good long-term hedge against inflation.

Thus, investors looking to diversify their investments and seeking less risky investments can consider investing in gold.

Check: Gold Rates Today 20 June 2025

Who Should Invest in Mutual Funds?

Mutual funds diversify your investments across asset classes, thus lowering risk. They allow you to invest in both equities and debt across sectors and geographies. Financial professionals manage mutual funds whose main goal is to maximize returns for their investors. Historically seen, mutual funds have consistently given significant returns to investors.

Thus, if you are seeking equity exposure and wish to invest in a diversified portfolio, mutual funds are a suitable option. Moreover, there are different types of mutual funds that suit different investors. If you are an investor who has a high tolerance for risk, you can invest in pure equity funds like small-cap, mid-cap, large-cap, multi-cap funds, etc. While, if you have a moderate risk tolerance level, you can pick long term debt funds or hybrid funds. Also, if you have low-risk tolerance levels, you can pick debt funds like liquid schemes or ultra-short term funds. Therefore, mutual funds are suitable for all investors. Thus, you should be able to pick the funds that best suit your investment objective and investment horizon.

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