Gold Vs Mutual Funds Return over past 10 years

 

Investing in gold and mutual funds are two prevalent strategies for individuals aiming to grow their wealth. Each avenue offers distinct characteristics, benefits, and risks. Understanding their performance over the past decade, the factors influencing their valuations, and the reasons behind gold's reputation as a "safe haven" can aid investors in making informed decisions.

Performance over the Past 10 Years

Gold:

Over the last decade, gold has demonstrated a compound annual growth rate (CAGR) of approximately 12% in India. For instance, on December 24, 2014, the price of 10 grams of gold was ₹25,570, which increased to ₹78,500 by December 24, 2024. Gold also act as a hedge against currency depreciation.

Further Gold has universal acceptance all over the world.

Mutual Funds:

Mutual funds, particularly those invested in equities, have generally provided higher returns compared to gold. For example, the ICICI Prudential Nifty Next 50 Index Direct-Growth fund delivered an annualized return of approximately 17.31% since its inception in January 2013.

Factors Driving Investments

Gold:

1.      Economic Uncertainty: During periods of economic instability, investors often turn to gold as a safe haven of investment as Gold prices remains stable.

2.      Inflation Hedge: Gold is perceived as a safeguard against inflation, maintaining its value as the purchasing power of currency declines.

3.      Geopolitical Tensions: Global political unrest can lead to increased demand for gold due to its universal acceptance and intrinsic value.

Mutual Funds:

1.      Economic Growth: A robust economy typically boosts corporate earnings, leading to higher stock prices and mutual fund returns.

2.      Interest Rates: Lower interest rates can make equities more attractive compared to fixed-income investments, enhancing mutual fund performance.

3.      Market Sentiment: Investor confidence and market trends significantly influence mutual fund inflows and valuations.

Why Is Gold Considered a Safe Haven?

i.                    Gold's status as a "safe haven" stems from its historical role as a stable value over the period of time.

ii.                  Unlike paper currencies, gold is not subject to inflationary pressures or interest rate fluctuations.

iii.                Its universal acceptance and limited supply contribute to its enduring value, especially during times of economic or geopolitical turmoil. However, it's important to note that while gold can preserve wealth, it may not always provide substantial returns compared to other investment avenues.