First we need to understand both:
Bitcoin vs Mutual Funds
To understand bitcoins we first need to understand what are cryptocurrencies.
Bitcoin is a digital currency that has attracted considerable attention because of its investment potential. Investors hold bitcoin in the hope that the price will rise.
There is no physical coin linked to bitcoin. It exists only in the internet where bitcoin uses its own network to enable global transfers directly between individuals so no intermediary like a bank or PayPal serves as gatekeeper between users and their funds. Cryptocurrencies also known as digital currency are known as lines of computer code that hold monetary value. Governments have no control over the creation of cryptocurrencies, which is what initially made them so popular.
On the other hand Mutual funds work in a way as investment vehicles where many investors pool in their money and this money then is invested into various financial instruments such as stocks, shares of companies, bonds and debt instruments which will generate more wealth depending on the market situations.
Mutual funds are managed by fund manager as to where the money needs to be invested and what will bring more profits. Certain regulations by the government to come into the picture when returns need to be taxed and there are various sections which govern these regulations.
Investment
There are two ways to invest in Bitcoin.
- Buying from exchanges and trading
- Mining from computer/GPU
Mutual funds can be purchased directly from a mutual fund company, a bank, or a brokerage firm. Before you can invest you will need to have an account with one of these institutions prior to placing an order. The process of buying a mutual fund can be done over the phone, online, or in person if you are dealing with a financial representative. To place an order, you would indicate how much money you want to invest and what mutual fund you want to purchase.
Risks and profits.
The cryptocurrency market is highly unstable, and it can make you rich in a day or destroy everything you ever invested within a fraction of a second.Look at the classic case of Ethereum, at the beginning of the year 2017, the price was close to approximately $40, which later increased to approximately $400 and now it’s currently trading at $200.
Another example of what could go wrong in the crypto coin realm is the case where an exchange dropped the price of one ETH coin to $0.10 and triggered the stop loss set by investors.
The base of these crypto coins, Blockchain, is in its very early phase and there is a potential for mass adoption.South Korea and few other countries are already moving in a direction to legalize bitcoins.These kinds of activities promote the market value of a coin and in return provides good returns to the investor.
It is a game of risk assessment and time for which you can keep your money invested. There have been few speculations in the market pointing towards a huge appreciation of Bitcoin value.Some analysts believe that the Bitcoin prices can go up to as high as $100,000.
Mutual funds firstly depend on market conditions. So before investing in mutual funds it’s very important to look into the investments done by the mutual fund, which sectors is the fund investing, how is that sector performing. Ideally, 3-5 years are expected to gain a good amount of return of around 30% in mutual fund investments.
Also the risk in this is comparatively low, since here we know who is governing mutual funds and also we get to know on a daily basis the NAV(Net Asset Value) of mutual fund which helps us decide on whether to stay in mutual fund or withdraw our amount.
Another important thing to note is that under section 80C, investment in mutual funds (ELSS) of upto INR 1.5 Lakhs is exempted from tax which is not the case in bitcoins. No doubt lot of regulations are present in mutual funds, but this makes it comparatively less risky than bitcoin investment.
Which is good?
Well, it depends, whether you are a seasoned investor or recently started buying and how much you know about the crypto market.
Approach for investing in financial instruments is much different than investing in the cryptocurrencies. Everything that happens in the coin market is in one way related to the demand and supply, and also other factors such as legalization, the technology behind a coin, popularity and what future it holds.
Whereas in the mutual funds, the performance is calculated based on the type of resources it is investing into, the top holdings, age and how the overall performance has been for the past three to five years.
At Groww, if you open any of the portfolio or mutual funds you can see all the factors that are affecting returns on your investment, whereas with the crypto coins factors change within minutes and prices fluctuate every second.
Second, it also depends on risk appetite of the person, if the person is in his old age and wants to invest his savings in regular income schemes then cryptocurrency investment is not an option for him.
On the other hand if the person doesn’t want to take too much of risk and invest in schemes which give really good returns he may consider the option of investing in equity mutual funds, in which if remain invested for a longer period give good amount of returns.
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