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Gold Vs Equity Mutual Funds: Why Gold Has Been A Better Investment?
Until a few years back, gold was considered by many as a dead investment. The equity culture had taken shape, including investment in mutual funds. However, if you study the trend of returns between gold and large cap equity mutual funds, over 1, 3 and 5 years, you realize that gold has been a much better investment.
Even the 10-year returns of large equity schemes are similar to those of Gold ETFs. Let's take a look. For the purpose of analysis, we have taken large equity mutual fund schemes, which have been rated 5-star by Crisil. We have also taken returns from gold ETFs, which in any case track gold prices and are investments in gold in the electronic form.
Returns from Gold ETFs (annualized)
| 1-year returns | 3-year returns | 5-year returns | |
| UTI Gold ETF | 38.89% | 19.61% | 12.34% |
| HDFC Gold Fund | 40.86% | 19.24% | 12.07% |
| Kotak Gold Fund Regular Plan | 42.51% | 19.68% | 12.58% |
| Nippon Indian ETF Gold BEES | 39.17% | 19.43% | 12.24% |
Annualized returns from large cap equity mutual funds
| 1-year returns | 3-year returns | 5-year returns | |
| Aditya Birla Sun Life Frontline Equity | -8.17% | -0.19% | 4.36% |
| Axis Bluechip Fund | 1.54% | 8.81% | 8.49% |
| Canara Robecco Bluechip Equity Fund | 4.30% | 6.88% | 7.74% |
| ICICI Prudential Bluechip Fund | -6.20 | 2.20% | 5.96% |
| SBI Bluechip Fund | -6.80 | 0.40% | 5.02% |
| HDFC Top 100 | -16.43% | -0.91% | 4.12% |
For the above, we have taken select 5-star rated equity mutual funds, while for some others we have taken the ones with a strong pedigree and large assets under management.
Should you invest in gold vs equity mutual funds?
The problem for equities is that unlike gold, they could just come crashing down, wiping off returns generated over several years. Up until early this year, equity mutual funds were showing an annualized returns much better than gold. In a span of a few months, things have taken a nasty turn.
There is no certainty that after Covid-19 infections abate, there would be no other natural calamity. Gold is a safe haven asset and must be a part of every portfolio. The best thing to do is to diversify your portfolio and stay invested in gold as well as in equity mutual funds. However, when you have made decent returns it's best to encash the same, especially equity mutual funds.
Difficult to predict
While equity mutual funds have always advocated long-term investment, even the 10-year returns from equity mutual funds have not been extra ordinary.
Noted economist John Keynes once wrote: "This long run is a misleading guide to current affairs. In the long run we are all dead."
The way things are fast evolving, one is not sure of the long term. Things are more uncertain at the moment, than certain. Border disputes sparking tensions, diseases and natural calamities make gold a safer better than equities at the moment. As things currently stand with a likely global recession, you do not want to bet against gold.
About the author
Sunil Fernandes has spent 25 years covering business and finance in India and abroad. Sunil has worked with frontline daily newspapers including Hindustan Times, Deccan Herald and Gulf Times. He has also worked with investment magazines like Dalal Street Investment Journal and Oman Economic Review. His forte remains stocks, mutual funds and tax planning.
