Bitcoin Vs Mutual Funds: Where to invest?
In today’s time, earning steady salary or income is not enough if you want to grow your money. You need to invest your earning somewhere so it can grow and can help you plan retirement, child’s future. You have lot of options for investment. We will compare two very famous investment options, bitcoin and mutual funds. Lets read about bitcoin vs mutual funds. Every investment gives different returns. We generally hear stocks, shares, mutual fund, property, gold, silver when we talk about investment.
Mutual fund is a pool of money managed by a trust that collects money from a number of investors sharing similar investment objectives and invests the same in equities, bonds, money market instruments, and/or other securities.
Now a days, bitcoin has also become very famous word which we are hearing everywhere; on internet, in news paper. Few people find it complicated, few find it good opportunity as it has given return in last decade which no other investment had given till now.
Cryptocurrency is not a legal tender in India, but if you want to buy a certain crypto like Bitcoin, Dogecoin, etc. you can trade in it. India does not have regulatory proceedings to govern cryptocurrency till now. But, because of its high returns, everyone is talking about it. In 2010, one bitcoin was costing about $0.08 and now price of bitcoin is $59,172.10. No other investment has given such return in decade time.
Pros of Mutual Fund
Return on Investment: Though traditional investments like fixed deposit gives guaranteed return but mutual fund offers higher return. To meet your financial goals, you need to look for investment with higher return.
Traditional investments can give return upto 7% but wisely selected mutual funds can give returns upto 12% and more.
Flexibility: If you select Systematic Investment Plan (SIP) as an investing mode for mutual fund and then cant manage to pay one SIP amount, it doesn’t stop your mutual fund investment. You can pause SIP and restart it anytime. But same thing is not possible with traditional investment plans.
Various Choices Available: You have lot of options available as per your risk tolerance and financial goals. You can select less risky(Debt fund) to moderate risky(hybrid fund) to more risky with higher return(equity). If you can take risk and young then you can go for equity fund. Or, you can put your money in multiple options to balance risk.
Pros of Cryptocurrency
Self-governed and managed: The transactions of cryptocurrency are stored by the miners (developers) on their hardware system for which they get a commission or fee as a reward. As the miner is getting a fee it is their job to keep the records up-to-date and precise. The development of any currency dependents hugely on its governance and maintenance.
Decentralized: the decentralization of cryptocurrency makes it free from monopoly and keeps a check on it that no particular organization can decide on the flow and value of it.
Transparency: All the transaction related to the trading of cryptocurrency is recorded on the blockchain. The amount of cryptocurrency owned by a particular person is available for viewing at any point of time. This proves to be huge advantage for those who want a more transparent financial system.
Low Transaction Cost: The fees paid for transaction of cryptocurrency is very low because of the elimination of any third party like VISA etc. to verify the transaction. So, transferring money is easier and cheaper even across border.
Ease of Transferring money: Governmental policies and restriction make transferring of money across border very expensive and tedious process. Cryptocurrency has made this job easy and is helping people to send money to their family sitting in a different nation. It is easily accessible across the globe.
Prevents Inflation: Inflation decline the value of a particular nation’s currency. But, cryptocurrency is released with a fixed amount at the time of its launch. The source code mentions the quantity of coins, like only 21 million Bitcoin is released in the world. When the demand will be high the value will increase which will prevent inflation in the long run.
Absolute Privacy: Cryptocurrency is completely anonymous, which is a boon to people to want to keep their online privacy intact and skeptical of revealing digital data. The chances of theft reduce which ensures security.
Fast and accessible round the clock: Purchasing goods and services over your mobile phone at any point of time from anywhere is easily possible. There is no restriction with time and place during a transaction through cryptocurrency.
Ease in exchanging currency: Cryptocurrency wallet helps in converting one currency to another by trading in it, as it can be bought using many currencies like US Dollars, Euro etc. the transaction fee is also very low.
No limit on the transactions: There are no restrictions on the amount that has to be transferred from one crypto wallet to another held by anyone across the globe.
- SIP in Cryptocurrency and 3 Cryptocurrency SIP Platforms In India
- Tax on Cryptocurrency Investment in India
Cons of Mutual Fund
Costs of managing mutual fund: Operational costs of the fund like salary of the market analysts and fund manager comes from the investors. Investor should consider total fund management charges before choosing a mutual fund. Higher management fees do not guarantee better fund performance.
Exit Load: Exit load is fees charged by AMCs when investor exits a mutual fund. It discourages investors from redeeming investments for some time. It helps the fund manager keep the required funds collected so he can purchase the appropriate securities at the right price and time.
Cons of Cryptocurrency
Unregulated and Volatile: The price of cryptocurrency follows the law of demand and supply. So, when regulatory authority is absent volatility comes into account due to market speculations and manipulation. Institutional investment is discouraged as it is a digital asset and completely dependent on faith. A particular cryptocurrency may be worth of fortune today and absolutely worthless tomorrow.
Can be used for illegal activity: Cryptocurrency is based on cryptography which leads to high privacy and security. So, it becomes difficult for government agencies to track any user by their wallet or keep an eye on their data. A number of incidences have been reported where cryptocurrency was used for illegal activity like trading of drugs. It is also used to convert black money through a clean intermediary and hide its source.
Operated by its developers: Though one of the major features of cryptocurrency is its decentralized nature but still the flow and amount of a certain currencies is still controlled by its creator or some other organization. The manipulation in its value can be done by them.
Financial loss due to lost data: If any user losses the Private Key to their wallet, there is no way of getting it back. Cryptocurrency is a digital currency created by secure code that is almost impossible to hack. But if private key is lost the wallet gets locked with all the coins inside it which is a major financial loss.
No refund: In case of any conflicts between the parties involved or if somebody sends funds to a wrong wallet address the coins cannot be recovered. The lack of refund policy makes it easier to fraud people. The gained attention on cryptocurrency has also attracted many scammers.
It’s not User-Friendly: Cryptocurrency is the baby of computer science. This makes the vocabulary very hard to understand. The functioning also involved certain amount of technical skill. More people are getting familiar with the concept of cryptocurrency these days but its use is still limited and regulation policy varies from country to country.
Anonymity: Being anonymous is more of a bane than a boon to the society at large. Terrorists and criminals would use this virtually untraceable platform for their transactions. The black market and dark web are big users of cryptocurrencies.
Susceptible to hacks: The wallet data stored by exchanges to operate the users ID can be hacked giving access to a large number of accounts. Most exchanges are highly secure but there are incidents reported of hacking and stealing of cryptocurrency.
Not accepted by all vendors: It is still not accepted by all the vendors. The fluctuation in price and all the money saved in a transaction can also be negligible.
Bitcoin vs Mutual Funds
But, now lets compare famous cryptocurrency like bitcoin and mutual funds.
|Mutual fund is legal in India||Bitcoin is not legal in India|
|Mutual funds are regulated by SEBI (Securities and Exchange Board of India)||Bitcoin is digital entity, its not regulated by any government or any central bank|
|Mutual fund is backed by equity, commodity or any security where it invests money like Gold ETF is backed by physical gold||Bitcoin is not backed by any commodity or gold|
|Risk is associated with market as it invests in share market or debt market||Lot of risk as its not regulated by any government or any central bank|
|As compared to cryptocurrency, price is stable and does not fluctuate so much and if it’s planned with expert’s opinion then it gives high return||As discussed above, it has given lot of return in last decade but the value fluctuates a lot|
|You can buy mutual fund online or offline through mutual fund house or broker||You can buy bitcoin through mining; which is a process to solve baffling mathematical equations to authorize crypto transaction or buy bitcoin from online crypto exchanges|
|Buying mutual fund has hidden charges like entry/exit load, AMC advisory fees, agent fees, etc||Mining bitcoin is expensive, you need to own high performing machines and electricity to run such machines|
If you buy bitcoin from crypto exchange then trading fees to be paid
|Gain received from mutual fund investment can be taxed as long-term (LTCG) or short-term (STCG)||Gain received from Bitcoin trading can be taxed as business income, capital gain, professional income or income from other source|
|Bitcoin’s market is open 365 days 24×7||Mutual fund trading is open till market is open|
Above, we read about pros and cons of mutual funds, pros and cons of bitcoin and bitcoin vs mutual funds. Investment decisions are taken as per person’s needs, risk capacity, duration, etc. Investing in bitcoin or any other cryptocurrency carries high risk as prices fluctuate a lot. Bitcoin is not regulated by any country or central bank. And cryptocurrency is not legal in India. So, you can invest a small amount which you can risk. On the other hand, mutual fund gives less return as compared to bitcoin but its less risky too. If you take advice from expert before investing in any mutual fund scheme then there are less chances of losing money. Again, don’t put all your eggs in one basket to be safe.
Getting into crypto is not easy but Indian crypto exchanges like WazirX and CoinSwtich created a platform where Indian people can buy or sell crypto with security. WazirX is a popular cryptocurrency exchange app that can be used to trade cryptocurrencies in India.