Which Will Give You Higher Returns? Equity, MF's or Gold?

  • Posted By : reliancesmartmoney.com
  • Friday Jul 20, 2018

Key Takeaways

  • What motives guide investment behavior
  • Overview of each type of instrument
  • Pros and Cons of each

Spending your own money is vastly different from spending your parents’ money all through school and college. While you only thought of immediate pleasures and gratification with their money, your own money you plan for, you want to grow and prosper from it.

You need to look beyond just the day salary gets credited, and consider the future-based objectives that your money needs to enable. By and large these are:

  • Multiplying one’s savings
  • Reducing Tax Liabilities
  • Earning ROI (Return on Investment)
  • Protection against inflation
  • Financing for future expenses
  • E.g. family healthcare, emergencies, marriages, children’s education

Today, we examine 3 avenues of investment that most us park our money in - Equity, Gold and Mutual Funds. 


Buying your shares directly from the market calls for a very specific investing bent of mind. Only those willing to get their hands stuck into the volatility and ‘high-risk / high reward’ game of trading stocks, and have the discipline and resilience the market calls for, need apply.

Mutual Funds

A mutual fund is an investment programme managed by professionals, and invested in by a pool of investors who wish to save / make money. The investor can sell his/her ‘units’ in the fund either partially, or wholly, as needed. In the meantime, the value of the overall fund varies with market movements, so every investor participates proportionately in the gain or loss of the fund.


A traditional favorite of an Indian householder, gold has in the recent years gone from mother’s or wife’s jewelry sitting in a locker, to a host of virtual (eGold) and financial (Gold ETFs) instruments.
For this article, we’ll discuss the pros and cons of holding physical gold as an investment.

Assessing the Pros and Cons

Reason to Invest How each investment class fares
Equity Equity-linked Mutual Funds Physical Gold

Multiplying one’s savings

Yes, with active tracking, but high exposure to risk

Yes, with periodic performance assessments

Not actively

Reducing Tax Liabilities

Only if held for over 1 year

<1 year - 15%* short-term Capital Gains tax applies

* conditions apply

Only if held for over 1 year

<1 year - 15%* short-term Capital Gains tax applies

If held < 3years – counted as income, and taxable as per slab rate

If held > 3 years – 20%*

* conditions & indexation apply

Earning ROI

Driven by market volatility and constant tracking
High Risk/High Rewards

Yes, market linked.
But diversification
and rupee-cost averaging evens out long-term risk

Yes, as determined by commodity price

Protection against inflation

Good hedge against moderate inflation
But negatively impacted by deflation or inordinate inflation


Medium to low

Financing for future expenses

Unattractive, prone to much volatility

Attractive over long term, easy to resell

Medium over long term, involves effort in resale

On the spectrum of risk-aversion, the 3 instruments rank in the order of Gold, Mutual Funds and Equity. With Gold being preferred by those with the highest aversion to risk and exposure.

The Gold Monetisation Scheme government bodies well for the transparency and ease of liquidating gold, but its success has been patchy and points to the abiding trend of Indians holding gold more for cultural and tradition-driven reasons than as a pure investment instrument.

Between Shares and Equity-linked Mutual Funds, the choice really comes down to investor behavior and risk-appetite.

Of course, at the end of the day, the ultimate protection against inflation, volatility, etc. is diversification. So, study tailor your exposure to each investment class to the goal you need the amount invested to meet:

  • Quick ROI's, or long-term measured returns?
  • Rainy-day fund for emergencies, or sustained appreciation for long-term? etc.

The better spread out and diversified your portfolio, the better your risk (and returns) will balance out.

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