Cryptocurrency vs Mutual Funds: Where to Invest in 2023

Are you considering investing your money but don’t know which to go for cryptocurrency vs mutual funds? However, you must ensure to factor out your risk-reward ratio before any investment. Also, know how much of the risk of the investment you can take.

Meanwhile, rumor says that cryptocurrency is riskier compared to mutual funds. Therefore, depending on your risk appetite, you may opt for cryptocurrencies, one of the riskiest assets to invest in, or mutual funds amongst the least risky.

Cryptocurrency-vs-Mutual-Funds

So, our group of professionals has clearly defined the two terms and given you the relationship between cryptocurrency vs mutual funds. So you could see the best option to invest in this year.

What are Mutual Funds?

They exist many types of investment instruments and mutual funds are a part of them. Thus, mutual funds typically entail money collected from institutional and individual investors and then collectively used to invest in various financial instruments like bonds, equities, money market instruments, and others. We refer to the entire amount invested as the portfolio. While an Asset Management Company (AMC) generally manages the funds.

Furthermore, various types of mutual funds have different levels of risk attributed to them. The Debt funds have lower risk levels than Equity funds. To invest in mutual funds you can directly visit the nearest branch of the fund house, through a broker, the website of the fund house, or a mobile app. 

What are Cryptocurrencies?

Cryptocurrency is a medium of exchange established upon a peer-to-peer system. In cryptocurrency, the users bear the responsibility of managing and maintaining their value. These are decentralized. This means that it has no regulation from financial intermediaries such as banks or the Government. 

Also, cryptocurrencies are immaterial and stored in online wallets. They record all the transactions in code on a public distributed ledger called the blockchain. We call them so because they use encryption to conduct transactions. 

Additionally, a man named Satoshi Nakamoto initiated the basic outline for the first crypto, Bitcoin. However, currently some. of the most popular traded crypt out of over 5,000 includes Bitcoin, Ethereum, BNB, Ripple, Polygon, Solana, Polkadot, USDT, Binance Coin, etc.

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Cryptocurrency vs Mutual Funds

Below, we’ve carefully distinguished between Cryptocurrency vs Mutual Funds with several illustrations

#1. Method of Operation

Mutual Funds use money pooled from investors and invest them in securities. While anyone person can invest in their desired cryptocurrencies using an an online wallet.

#2. Operated By

Fund houses or Asset Management Companies maintain and manage Mutual funds. Conversely, the creators of the cryptocurrencies and management duties are broadly disseminated amongst investors. 

#3. Reason for Investing

Mutual Funds investments usually focus on gaining returns on surplus income or for long-term profits.

While in cryptocurrency, some people invest just to take advantage of price fluctuations. However, others see it as a convenient investment for long-term rewards without deflationary pressures. 

#4. Year of Introduction

Mutual funds started way back in 1963. While cryptocurrency started as an invention in 2008 as a result of the global financial crisis. They started gaining popularity across the globe in the mid-2010s.

#5. Government’s Stance

The Government facilitates investment in mutual funds, even talking about it, they exist a few state-owned mutual funds.

On the other hand, the GOI still has a wary stance on cryptocurrencies and banned mutual funds from investing in cryptocurrencies. Meanwhile, the Government plans to regulate investment in cryptocurrencies instead of banning them by introducing a crypto bill.

#6. Minimum and Maximum Value

Systematic Investment Plans (SIPs) start from as low as $5. Normally, it has no maximum value.

In cryptocurrency, the minimum and maximum values vary depending on the digital wallet.

#7. Rate of Return

Mutual funds usually don’t have a fixed rate of return. Rather, the market performance and the fund manager’s strategy determine the yield.

While various cryptocurrencies have varied rates of returns.

#8. Level of Risk

Different mutual funds have varying levels of risk. Therefore mutual funds also has their associated risks.

However, cryptocurrency can be extremely risky.

#9. Maturity Period

When investing in mutual funds, they exist no specific date or tenure. Thus, investors can exit the fund at any time they choose. Hence, they can decide to invest in the short, medium, or long term.

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On the other hand, in crypto, you can stay invested for as long as you wish provided the crypto still exists.

#10. Level of Liquidity

Mutual funds have a relatively high level of liquidity. There exist mutual funds where you can withdraw your money even after one day. Generally, AMCs will charge a fee called the “exit load” whenever an investor requests to withdraw their funds before the given period. This situation applies only to open-ended mutual funds.

However, Cryptocurrencies with large market caps like Bitcoin, Ethereum, BNB, etc, are the most liquid assets.

#11. Tax Efficiency

Different mutual funds depending on their types (equity-based, debt-based, or hybrid) have different tax rates for both the short and long term. 

On the other hand, LTCG (over 36 mth) tax of income from the sale of cryptocurrencies charged around 20% post indexation. LTCG tax means the same thing as the income tax rate of the individual.

Should You Invest in Cryptocurrency or Mutual Funds?

Where you should invest solely relies on your risk tolerance/appetite for the outcomes you seek too. So it is relative. Thus, based on your risk tolerance, you may choose to invest in mutual funds to achieve your financial goals. Mutual funds have good investment regulations, and you may see stable returns depending on the type of mutual fund scheme you chose. More so, you can invest in mutual funds if you want an investment opportunity where many investors pool funds and the fund manager manages your money. 

Furthermore, investing in mutual funds enables you to put money into a tangible asset. Mutual funds, especially equity funds, help you invest in a company’s stocks. Thereby, making you a part-owner of the firm.

However, you may choose to invest in cryptocurrency for the long run only if it remains stable and doesn’t fluctuate wildly. Although, for the main time cryptos are not legal tender. Also, their price rises or falls rapidly in a short time. But if you can take the risk invest in crypto as it can yield more profit rapidly. Still yet, remember they are vulnerable to hackers.

Consequently, you must invest in mutual funds over cryptocurrency. It is a tangible investment supported by physical and financial assets, unlike cryptocurrency which obtains its value from speculation. The capital market regulator, SEBI, regulates Mutual funds and may offer stable returns over time. While, the price of cryptos fluctuates wildly, making it a risky investment. In a nutshell, you must not invest in cryptocurrency unless it becomes legal tender or you are willing to bear the risk.

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FAQs On Cryptocurrency vs Mutual Funds

What investment is better than crypto?

Mutual funds investments like stocks are preferable to invest in. Yes, they are often volatile but tend to be less volatile than crypto. Investors who can leave their money alone and don’t need to access it can put their money in stocks.

Do mutual funds invest in crypto?

Yes, many mutual fund and ETF products invest in Bitcoin futures contracts, giving clients with a brokerage account a way to have indirect exposure.

How do beginners invest in cryptocurrency?

To invest in cryptocurrency online, you’ll have to create an account with a broker or exchange that supports your preferred digital assets. After signing up and verifying your identity, you can then deposit funds and purchase your preferred cryptocurrency.

Conclusion

Finally, cryptocurrency vs mutual funds is an interesting debate. Meanwhile, you need to clearly define your investment goals before deciding to invest in any asset class. If you primarily don’t care about the risk, then you can digest extreme volatility. Therefore, cryptocurrency can be a good choice of consideration for you.

However, if you seek stable returns and risk management, you may consider investing in mutual funds. Irrespective of what you decide to invest in, you have to perform proper research and select the investment which best fits your risk appetite and overall financial goals.

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