Gold is of utmost importance for Indian families. It is not only an investment but has cultural significance. Festivals and special occasions include traditions of purchasing gold coins and ornaments. Gold is a great way to create wealth that lasts for generations. But with the advent of paper money and new age financing, different modes of investments have come up. The new methods of investing are convenient and offer opportunities to earn higher returns. One such investment is mutual funds.

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. But gold is still popular because it hardly loses value which poses a question – gold vs mutual funds – which is a better investment? Let’s find out.

Gold Vs Mutual Funds – The Difference

The most basic difference between gold and mutual funds is that mutual funds are a pool of money collected from investors to purchase securities and assets, while gold is a commodity. The price of a mutual fund’s units depends on how the underlying securities perform in the securities market. The price of gold depends on its actual supply and demand in the market.

Gold vs Mutual Funds – Head-to-Head Comparison

BasisMutual FundsGold
TypesEquity, Debt, and HybridPhysical and Digital Gold
OptionsYou have tones of options depending in terms of type of securities and mode of investment. Equity: Large-, mid-, small-, multi-cap, value funds, etc. Debt: Liquid funds, ultra-short-term, credit risk funds, etc. Investment Mode: Regular and Direct Plan.You can purchase physical gold in form of jewellery, bullions, and gold monetization scheme. Digital gold can be purchases in form of gold mutual funds, gold ETFs, and Sovereign Gold Bonds.
Initial InvestmentYou can invest lump sum or opt for SIP and invest small amounts regularly. You can invest in a mutual fund starting at just Rs 100.A gram of physical gold costs thousands. But you can invest in digital gold for much cheaper.
ReturnsReturns depend on mutual fund type. Data shows mutual funds generate returns of around 15%-18% in a year.Gold can give returns of around 10% in the long run.
Fee and Additional ChargesYou have to pay management fee that is part of expense ratio. Charges vary if a mutual fund is actively or passively managed.Physical gold has no additional cost apart from cost of making them. Digital gold has expense ratio but it is quite low.
LiquidityYou can sell mutual funds easily on stock exchange.Gold is always in demand and you can resell it with ease.
Risk FactorBeing market-linked investments, mutual funds are riskier than gold. But mutual funds are managed by professionals who make decisions for you.Gold is a very low risk-bearing investment.  
Tax BenefitsTax benefits are only available Equity Linked Savings Schemes.Only sovereign gold bonds and gold monetization schemes offer tax benefits.
CompoundingYou can maximize returns from compounding by investing in growth mutual funds.Gold does not earn interest or dividends so there is nothing to reinvest.
Performance During Poor Market ConditionsWhen stock market hits low, value of mutual funds decreases. But, as soon as market recovers, mutual funds do too.When market crumbles, investors look for other safe alternates. They turn to gold strengthening its value.

Gold vs Mutual Fund – Where to Invest Your Money

Equity and debt are the two most common types of mutual funds. So, first, let’s see a gold vs equity mutual fund comparison. 

  • Gold vs Equity Mutual Fund

Investing in gold is less risky and increases in value over time. However, there is no interest or dividends so investors do not have the option of reinvesting limiting returns on their gold investment. On the other hand, equity funds earn higher returns compared to gold which you can reinvest to maximize your returns.

Considering the gold vs equity performance in India, gold returns have lagged far behind than those of mutual funds. Gold has been provided around only 10% returns in past few years while most mutual funds’ 5-year returns have stayed in 15% to 18% range.

So, between gold vs equity mutual funds, equity funds are the way to go. 

  • Gold vs Debt Mutual Fund

As for debt mutual funds, they allow you to invest in fixed-income securities and earn interest. Debt funds have generated returns in the range of 8% to 10% in the last decade similar to returns on gold. So, debt mutual funds are a better option if you aim to earn regular income from your investment. The only way to get any income from physical gold is to sell it. 


This gold vs mutual fund shows that both are significantly low-risk investments. Even though physical gold does not offer steeper returns, its value does not reduce even over the long term. On the other hand, mutual funds give you exposure to market securities, so you can earn high returns which you can reinvest further. Mutual funds are managed by professionals, so you earn returns without much risk.

So, investing in gold or mutual funds depends entirely on your investment goals. If you want to diversify investments, invest in mutual funds. But if you want an asset for the long-term that you can liquidate in no time, invest in gold.

The best strategy is always to spread your investments across different schemes and asset classes. So, invest 90% of your money in equity and debt mutual funds and the remaining 10% in physical or digital gold.

If you plan to invest in mutual funds, check out Moneyfy by Tata Capital. It is an investment platform with more than 40 trusted AMCs that offer a diverse range of equity and debt mutual funds. Visit the website and register yourself today.

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