Cryptocurrency vs mutual funds: Know about the two popular investments

In recent years, cryptocurrency has become the subject of much curiosity and debate. Simultaneously, mutual funds are also growing in popularity. Both investment options have unique characteristics, benefits and risks. Cryptocurrency is a relatively new and extremely volatile asset, while mutual funds are regulated and less risky in comparison.

In this article, we will discuss crypto vs mutual funds, their features, differences and which one is suitable for you to invest in.

• Table of contents

• Investment in mutual funds
• Cryptocurrency vs mutual funds
• Features of cryptocurrency
• Features of mutual funds
• Cryptocurrency vs mutual funds – how to choose?

Investment in mutual funds

Cryptocurrency is a type of digital money that exists only online. Unlike regular currency, it isn’t controlled by banks or governments. Instead, it runs on a technology called blockchain, which keeps a record of all transactions.

Blockchain technology prevents currency duplication. Investors can buy, sell and trade crypto coins on various crypto exchange platforms. However, unlike traditional financial systems, these exchanges and digital assets are not regulated or monitored by any central authority.

This decentralised nature offers greater financial autonomy but also comes with very high risks, including volatility, security concerns, and uncertainties. As a result, the crypto world has seen its share of failures, crashes and mismanagement. At the same time, there have been some significant gains, especially for early adopters.

Read Also: Mutual Funds vs Stocks: Differences and Which is Better?

Cryptocurrency vs mutual funds

Mutual funds are professionally managed investment funds that pool money from investors to invest in a diversified portfolio of stocks, bonds, and other securities. They are tightly regulated and closely monitored to foster investor protection and fair market practices.

Here are some key points about mutual fund investments:

• Managed by experts: Fund managers decide on investments based on market analysis.
• Risk mitigation: Compared to cryptocurrencies and other niche trading or investing avenues, mutual funds seek to mitigate risk through diversification and professional management. However, it must be noted that in all market-linked investments, risks remain.
• Diversified portfolio: Mitigate risk by investing in multiple assets.
• Regulated by authorities: In India, mutual funds are regulated by SEBI (Securities and Exchange Board of India), ensuring transparency and safeguarding of investor interests.
• Wide variety: Equity, debt, hybrid and index funds cater to different risk appetites.
• Return potential: Long-term investment in equity-oriented mutual funds can potentially enable wealth creation.

Here is how the two avenues compare on different factors:

• Risk: Cryptocurrency is highly volatile, whereas mutual funds are lower risk in comparison.
• Returns: Crypto can offer quick returns with very high risk, while mutual funds provide relatively steady, long-term growth potential.
• Investment duration: Crypto trading can be short-term, whereas equity mutual funds are more suitable for long-term investing.
• Regulation: Mutual funds are regulated, ensuring security, whereas crypto lacks legal oversight. Regulatory uncertainty in the case of crypto can lead to sudden market swings, potential restrictions and unfair practices.
• Market operations: Crypto operates 24/7, while mutual funds function during market hours.
• Diversification: Mutual funds are diversified by nature, as they invest in multiple securities and can even spread across multiple asset classes. Cryptocurrency is not diversified by nature; you need to invest in multiple coins to spread risk.
• Management: Mutual funds are professionally managed by investment experts who design and monitor the portfolio to reduce risk and enhance potential returns. Cryptocurrency is generally self-managed, resulting in more control but also greater risk.

Features of cryptocurrency

• Digital and decentralised: No government control.
• High volatility: Prices fluctuate rapidly.
• Fast transactions: No intermediaries.
• Unregulated: No governing body ensures its stability.
• High potential returns, but equally high risks.
• Security risks: Transactions are secure, but scams exist.

Features of mutual funds

• Managed by professionals: Reduces the risk for investors.
• Diversified investment: Spreads risk across multiple assets.
• Long-term growth potential
• Regulated by SEBI
• Relatively stable and less volatile compared to crypto
• Different investment options, from high risk equity funds to low/moderate risk debt funds.

Cryptocurrency vs mutual funds – how to choose?

Cryptocurrency can be suitable for you if:

• You can handle high-risk investments
• You are looking for potential short-term gains.
• You are up to date with trends in cryptocurrency and understand blockchain

Choose mutual funds if:

• You want professional fund management.
• You seek a regulated investment.
• You seek relatively steady growth potential in the long term with lower risks than cryptocurrencies

Read Also: Stock SIP vs mutual fund SIP: Meaning and differences

Conclusion

Both cryptocurrency and mutual funds have their pros and cons. While crypto offers the potential for quick gains, it also comes with extremely high risks. Mutual funds, on the other hand, provide long-term return potential with regulations and transparency. If you are a highly aggressive investor with adequate knowledge, you may consider crypto. However, for investors seeking a regulated avenue with checks and balances for potential wealth accumulation in the long-term, mutual funds could be more suitable.

FAQs:

Which is more suitable, crypto or mutual funds?

Crypto offers the potential for quick gains but at very high risk. Mutual funds are comparatively lower risk with relatively steady long-term growth potential. Moreover, mutual funds are regulated, while crypto is not.

Which is more suitable to invest in, stocks or cryptocurrency?

The stock market, while still high risk, comes under the ambit of SEBI. Cryptocurrency is highly volatile and unregulated, but offers the potential for quick gains.

Is it wise to invest in cryptocurrency?

If you have an extremely high risk appetite and a strong grasp of market dynamics, crypto can be considered. Otherwise, it’s a highly risky proposition.