Technology’s integration with finance has opened up new investment avenues. Unlike just a few decades ago, where people could see nothing beyond small savings accounts and fixed deposits, investors today have multiple schemes to choose from. Each has its own potential and risk profile, offering investors flexibility as well as the chance to diversify. Today, we’ll be talking about two such investment vehicles — mutual funds and bitcoins.
What are Mutual Funds?
Mutual funds are the safest introduction to stock markets. They essentially represent a sizable amount, which is accumulated from a pool of different investors. This amount is then invested into equity and/or debt instruments. Returns earned from the performance of these instruments are distributed among all the participating investors, based on how much they invested.
There are hundreds of mutual funds schemes out there, with each investing in different equity or debt instrument. The biggest benefit of investing in mutual funds is that the participating investors need not look after the performance of their schemes. A dedicated fund manager does it for them.
What are Bitcoins?
Launched in 2009 by a mysterious guy with the pseudonym Satoshi Nakamoto, bitcoin is an electronic cash system that allows individuals to send and receive money independently. This means that there’s no need to go through an intermediary, like a bank, to facilitate a transaction. It is based on blockchain technology, which is a decentralized ledger that stores every transaction on secure databases that cannot be changed by anyone.
Bitcoin is the most popular cryptocurrency today. What makes it so valuable is that there are only 21 million of them. 18.4 million of those have already been mined.
Comparing Mutual Funds with Bitcoins:
Choosing mutual funds over bitcoins, or vice-versa is entirely subjective. It depends on the kind of investor you are, your financial condition and your risk profile. Still, here’s a closer examination of the two schemes.
|Comparison Metric||Mutual funds||Bitcoins|
|Ease of Investing||Investing in mutual funds is quick, but involves a lot of digital documentation.||You can invest in bitcoin within minutes, as it is unregulated so far.|
|Risk Involved||Mutual funds are dependent on stock movements, so there is a bit of risk involved. However, it is marginal as compared to investing directly in equity.||Bitcoin is an extremely volatile cryptocurrency. It can increase or decrease more than 10-20% per day, which makes it the riskiest investment instrument.|
|Cost of Investing||Since mutual funds are regulated and are run by a fund manager, there are some fees involved.||You need to pay negligible charges in order to invest in bitcoins or any other cryptocurrency.|
|Tax||Mutual funds are not exempt from tax. You will need to pay tax on long-term (LTCG) as well as short-term (STCG) capital gains.||Bitcoins are considered as business income or professional income, so they attract taxes as well.|
|Governance and Security||Mutual funds in India are governed by the Securities and Exchange Board of India (SEBI). So investments are safe.||Bitcoins are unregulated and there’s no authority governing them. So investments made it in are unsecure.|
Bitcoins are a newly emerging investment option that offers huge opportunities for profit. Mutual funds have been around for a long time and provide predictable, low-risk returns.
Trying to compare and calculate bitcoins and mutual funds on the same scale is a futile exercise. Both offer completely different investment opportunities. Both, however, follow the same mantra: one must invest according to one’s risk appetite after carefully considering data, figures, and risk factors.