Gold vs mutual funds: What should you invest in for better returns?

India Today

24-04-2025

If you're thinking about where to put your money, whether in gold or mutual funds, then you're not alone. Many people wonder which of these two options can give better returns right now. Both are popular, both have their own strengths, and both work differently.GOLD: A SAFE HAVEN IN TOUGH TIMESGold is often seen as a safe investment. When markets are shaky or inflation rises, many investors turn to gold. That's because gold tends to hold its value and even grow when other assets fall.advertisementAccording to CA Ruchika Bhagat, MD, Neeraj Bhagat & Co., 'Gold, traditionally seen as a safe-haven asset, can be a good hedge against inflation and economic uncertainty. Through digital options like Sovereign Gold Bonds (SGBs) or Gold ETFs, investors can systematically invest in gold with ease.'
The yellow metal recently surpassed Rs 1 lakh amid growing tension around the world and trade war between the US and China.According to Nilesh D Naik, Head of Investment Products, Share.Market (PhonePe Wealth), 'Given the recent developments around trade tariffs, dollar weakening and the geopolitical uncertainty, gold has regained the spotlight.'But here's the catch, gold doesn't pay you any interest or dividends. You earn only when the price goes up, and you sell it at a profit. Also, gold prices can be unpredictable in the short term. They may rise quickly and drop just as fast.advertisement'Gold's long-term returns have historically lagged behind equity mutual funds, and it doesn't generate income, only capital appreciation,' said CA Ruchika Bhagat.MUTUAL FUNDS: A GROWTH-ORIENTED CHOICEOn the other hand, mutual funds, particularly equity funds, are linked to the stock market. When the market does well, your mutual fund investment can grow faster than gold. Over the long term, equity mutual funds have given strong returns, often beating inflation and other traditional investments.CA Ruchika Bhagat stated, 'Mutual funds, especially equity-oriented ones, offer exposure to a diversified portfolio of stocks, managed by professionals. Over the long term, they tend to outperform gold in wealth creation, thanks to the power of compounding and market growth. SIPs in mutual funds are particularly effective for disciplined investing, rupee cost averaging, and harnessing market volatility.'TAX IMPLICATIONS: GOLD AND MUTUAL FUNDSCA (Dr) Suresh Surana said, 'Prior to 23rd July 2024, if gold capital assets are sold within a holding period of 36 months, the gains are treated as short-term capital gains and taxed at the individual's applicable marginal slab rates. If such asset is held for more than 36 months, the gains qualify as long-term and are taxed at 20% u/s 112 with the benefit of indexation.'advertisementOn the other hand, if you hold listed equity mutual fund units for over 12 months before selling, the profits are treated as long-term capital gains; otherwise, they're considered short-term gains, he added.'The short-term capital gains would be taxed at the rate of 15% (enhanced to 20% w.e.f. 23rd July 2024) u/s 111A of the Income Tax Act ('IT Act'). The long-term capital gains are taxed at 10% (enhanced to 12.5% w.e.f. 23rd July 2024) u/s 112A of the IT Act provided such long-term capital gains exceed the threshold limit of Rs. 1.25 lakh in a financial year (previously Rs. 1 lakh prior to Finance (No. 2) Act 2024),' Surana mentioned.WHAT'S LOOKING BETTER RIGHT NOW?At the moment, gold is performing well because of global worries and inflation concerns. But experts believe that if the market becomes stable and interest rates fall, mutual funds, especially equity ones, could bounce back strongly.'For most investors, mutual funds should be the core SIP choice, especially for long-term goals like retirement or children's education. Gold can be a complementary asset, perhaps 5–10% of your portfolio, for diversification and downside protection,' said Bhagat.She added, 'Ultimately, a balanced approach aligned with your risk profile and time horizon works best. Speak with a financial advisor to tailor your SIP strategy accordingly.'advertisementConversely, if you want safety and already have other high-risk investments, gold might work well as a balance.Nilesh D Naik, 'While equity mutual funds are known to offer a better long-term return potential over the long run, gold helps in hedging against inflation and can potentially outperform all other asset classes during times of global uncertainty.'He added, 'For gold exposure, gold ETFs or gold mutual funds may be a better choice for investment compared to physical gold due to their cost efficiency, convenience and liquidity. A 10-15% exposure to gold is typically considered to be ideal for most investors. Given the current equity valuations and the run-up in gold prices, it may be advisable to take such exposure systematically via SIPs, to reduce the impact of any short-term volatility.'However, the best choice depends on your goals and how much risk you're comfortable with. Bhagat believes a well-balanced plan based on your risk appetite and time frame works best, and a financial advisor can help you build the right mix.Trending Reel