Should a 25-year-old invest in gold and mutual funds for high returns?

Can Investment in Gold and Mutual Funds Give High Returns??

Ans: Dear Sumukh,
Thank you for your question about investing in gold and mutual funds. Both of these investment options have their merits, but they work differently and suit different financial goals. Let's explore how they can potentially deliver returns.
1. Gold as an Investment
• Potential Returns: Historically, gold has been seen as a hedge against inflation and currency fluctuations. Over the long term, gold prices tend to rise, but the growth is usually moderate compared to equity-based investments. In the last decade, gold has provided returns averaging 6-8% per year. However, in times of economic uncertainty (like during the pandemic), gold prices surged due to its status as a safe-haven asset.
• Volatility: While gold is a relatively stable investment during periods of economic distress, its prices can be volatile in the short term. It's best suited for long-term portfolios or when you want to diversify and protect your investments from inflation.
• Forms of Gold Investment:
o Physical Gold (Jewelry, Coins, Bars): This involves storage and making charges.
o Gold ETFs or Sovereign Gold Bonds (SGBs): These are better options for investment, offering ease of trading, tax benefits, and interest on SGBs.
2. Mutual Funds as an Investment
• Potential Returns: Mutual funds, especially equity mutual funds, can offer much higher returns than gold over the long term. Over the last 10-15 years, equity mutual funds have provided average returns of 10-15% per annum, depending on the market conditions and the type of mutual fund.
o Equity Mutual Funds have higher growth potential but come with greater risk. These funds invest in stocks of companies, and their performance is directly linked to the stock market.
o Debt Mutual Funds are safer and provide more stable returns (typically 6-8%) but with less growth potential compared to equity funds.
• SIP (Systematic Investment Plan): One of the most popular ways to invest in mutual funds is through SIPs. This method helps mitigate risk through rupee-cost averaging and can lead to substantial returns if done consistently over the long term.
Which One Offers Higher Returns?
• Short-Term Perspective: Gold might offer stability in the short term, but mutual funds, especially equity funds, generally outperform gold when it comes to growth over the long term.
• Long-Term Perspective: Mutual funds, particularly equity mutual funds, are more likely to deliver higher returns over time. Gold can be a good hedge and part of a diversified portfolio, but it's less likely to deliver substantial returns by itself.
Ideal Strategy:
• Diversification: It’s a good idea to diversify your investments between mutual funds and gold. You could allocate a portion of your portfolio (e.g., 10-15%) to gold for safety, while the majority can be invested in mutual funds to maximize growth.
• Risk Profile: If you’re comfortable with market fluctuations, equity mutual funds could be a better choice for high returns. If you prefer safety, a combination of debt mutual funds and gold might be a better strategy.
Conclusion:
• Mutual Funds have the potential to give higher returns than gold, particularly over the long term, thanks to the growth of equity markets. In Mutual funds with High Risk you can earn up to 40% returns, where as at low risk you can get 6 to 9 % returns at debt funds. At Moderate risk you can achive up to 15 to 25% returns.
• Gold, on the other hand, is a safer, long-term investment that can protect against inflation but typically offers moderate returns. Golds can give you on and average of 10 to 15 % return over long horzons.
It’s essential to align your investments with your financial goals, risk tolerance, and investment horizon. You might consider consulting a financial advisor to help create a balanced investment plan.
Best regards,
Nitin Narkhede
Founder & MD, Prosperity Lifestyle Hub https://Nitinnarkhede.com
Free Webinar https://bit.ly/PLH-Webinar

Ans: Understanding Gold ETFs and Their Nature
Gold ETFs are paper-based gold investments.

You don’t own physical gold.

You hold digital units that reflect gold’s price.

They are backed by 99.5% pure physical gold.

Traded like stocks in the market.

Units are stored in your demat account.

You can buy or sell easily anytime during market hours.

There are no worries about making charges or purity.

Gold ETFs are a good way to get gold exposure in a simple manner.

What is Driving the Current Demand?
Global tensions increase demand for safe assets like gold.

Inflation fears push investors towards gold.

Currency weakening boosts gold value in rupee terms.

Gold is outperforming many asset classes recently.

Investors are moving money to gold ETFs due to high liquidity.

Institutional buyers are showing large inflows.

Domestic demand for jewellery is low, so ETFs are gaining.

All these are supporting gold ETF inflows at this time.

Evaluating Gold as an Investment
Gold is a store of value, not a compounding asset.

Gold does not give any income like rent or dividends.

It is purely capital appreciation based.

Over long term, it has underperformed equity mutual funds.

Gold rises during economic uncertainty.

But it stagnates during growth and stable phases.

It’s good during market corrections or crisis.

Hence gold must not be the core of your portfolio.

Short-Term View: Is This a Good Time?
Gold prices are near lifetime highs in India.

There has been a sharp run-up in the last 12–15 months.

Retail investors have rushed to gold in last 6 months.

That often signals a correction may come.

Entering now means limited upside short term.

Volatility can hit fresh investors hard.

A phased investment or SIP approach is safer.

Avoid lump sum entry now unless you are rebalancing.

Medium-Term View: What to Expect?
Over 3 to 5 years, gold may continue stable growth.

Gold can protect wealth if equity markets fall.

Central banks are still buying gold heavily.

Global political shifts support gold in the medium term.

However, growth will not be exponential from here.

The base effect will reduce returns as prices have surged.

A 7–10% annual return is a fair expectation.

Use gold to diversify, not dominate the portfolio.

Long-Term View: What’s the Risk?
Over 15–20 years, gold lags behind equity funds.

Equity compounding beats gold appreciation comfortably.

Gold doesn’t create economic output or business profits.

Equity markets reward business growth, gold doesn’t.

Keeping 20% or more in gold limits overall return.

It also misses out on compounding over decades.

Gold is insurance, not investment engine.

So gold must play a limited but strategic role.

Role of Gold ETFs in Your Portfolio
Gold ETF brings liquidity and transparency.

No physical storage issues or theft risk.

Easier to rebalance than physical gold.

Easy to sell and buy in small amounts.

Fits well with other paper-based investments.

Ideal for disciplined, small monthly gold investing.

However, do not treat this as a substitute for retirement planning.

How Much to Invest in Gold ETFs?
Keep gold exposure limited to 5–10% of portfolio.

Gold should be for downside protection only.

Do not increase allocation beyond 10%, even during crises.

If you already hold jewellery, gold ETFs not urgent.

Evaluate total gold exposure before adding more.

Overexposure to gold blocks growth potential.

Why Not Go Beyond 10% in Gold?
Gold will not beat inflation long term alone.

After taxes, the real return can be low.

Gold gives no regular income.

A high allocation may protect capital but not grow it.

You also miss out on equity returns.

Hence, excess gold investment limits long-term financial freedom.

Don’t Confuse Gold ETF with Index Fund
Gold ETFs are not index funds.

Index funds invest in stock indices.

Gold ETFs follow gold price.

Index funds just copy the market passively.

They lack the ability to beat the benchmark.

In contrast, actively managed mutual funds can outperform.

Index funds underperform when market gets volatile.

So, better to prefer actively managed mutual funds.

Gold ETF vs Direct Mutual Funds
Direct mutual funds lack hand-holding.

Investors face trouble during market volatility.

Without expert support, they may panic sell.

Regular funds give access to MFD guidance.

Certified Financial Planner can align funds with your goals.

Direct funds miss out on that service.

That small saving in expense ratio can lead to big losses.

Hence, regular plans with CFP help are a better choice.

Ideal Approach to Start in Gold ETFs
Don’t invest lump sum at this high price.

Start monthly SIP in gold ETF instead.

Fix a monthly amount and continue for 12–18 months.

This smooths out price volatility.

Rebalance once gold crosses 10% of your portfolio.

Sell some units and reinvest in equity or debt funds.

This ensures disciplined investing and risk management.

Tax Treatment of Gold ETFs
Treated like debt mutual funds in taxation.

No equity tax benefits apply here.

Short-Term Capital Gains taxed as per slab.

Long-Term Capital Gains also taxed as per slab.

No indexation benefit available now.

Exit should be planned based on your tax bracket.

Tax efficiency is lower than equity funds.

Alternatives to Gold ETFs
Sovereign Gold Bonds give fixed 2.5% interest.

But they are not easily liquid.

Bonds have long 8-year lock-in period.

Gold jewellery is not ideal due to making charges.

Physical gold also attracts GST on purchase.

Digital gold has safety issues.

Gold ETF remains the most efficient method for small investors.

Avoid These Mistakes While Investing
Don’t buy gold based on price hype.

Don’t invest lump sum at all-time highs.

Don’t use gold as retirement plan.

Don’t ignore asset allocation rules.

Don’t neglect equity and debt funds.

Don’t invest in gold if already holding too much jewellery.

Don’t try to trade in gold ETF daily.

Use gold ETF only for what it’s meant — protection.

Combine Gold ETF with These Investments
Pair gold with actively managed equity mutual funds.

Use hybrid funds for medium-term goals.

Keep emergency fund in liquid funds.

Use PPF for tax-free debt allocation.

SIP in equity mutual funds for long-term goals.

Track performance yearly with your Certified Financial Planner.

This creates a stable, growth-oriented, and balanced portfolio.

Finally
Gold ETFs are good for 5–10% allocation only.

They give inflation protection and risk balancing.

Do not expect high long-term compounding.

Use phased SIP approach to enter now.

Avoid lump sum entry at peak price.

Stay focused on long-term wealth creation.

Prioritise equity mutual funds for major goals.

Work with a Certified Financial Planner to align investments.

Review portfolio yearly and rebalance carefully.

Ensure your gold holdings do not exceed limits.

Gold brings stability. Equity brings growth.

Combine both for a well-rounded financial plan.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

Ans: Gold has a strong role in our culture. It gives emotional comfort. It also gives portfolio stability. Gold behaves different from equity and debt. This helps your portfolio stay balanced during tough times. Many Indian families see gold as a safety net.

But gold is not a fixed return tool. Gold does not give interest. Gold moves in cycles. So the right allocation and right expectation is key. You have asked at the right time.

» Is it the right time for gold now
Gold prices move due to many factors. These factors include global stress, inflation, currency weakness, and interest rate shifts. When the world feels fear, gold sees demand. When inflation rises, gold tends to protect value.

Right now, global volatility is still high. Many large economies face slowdowns. Currencies move sharply. Inflation remains sticky in many markets. Central banks also keep buying gold for reserves. These points support gold.

But gold also becomes costly at times. High prices may reduce near-term upside. Yet gold is still useful for long-term balance. Timing gold perfectly is hard for any investor. Even experts struggle.

As a Certified Financial Planner, I see gold as a risk reducer. Not as a profit generator. So the right time is not about today or tomorrow. The right time is when you want stability. If your goal is long-term and you want balance, then it is fine to add gold now in a planned way.

» How much gold makes sense
Too much gold will reduce your growth. Too little gold may reduce stability. Most long-term investors keep 5% to 10% of total wealth in gold. This is a steady range. It helps protect your portfolio during uncertain periods.

Your own risk level can guide you. If you feel nervous about market swings, you can stay closer to 10%. If you are confident and calm, you can stay near 5%. You should not hold more than 10% in most cases. Higher allocation slows long-term wealth building.

» Why gold mutual funds are better than physical gold
Physical gold needs storage. It needs safety. It also has making charges. It may get impurities. Selling physical gold may also reduce returns. So many long-term investors use gold mutual funds.

Gold mutual funds give you easy access. You do not worry about purity. You do not worry about storing it. You can buy small amounts through SIP. You can sell anytime. You also get transparency. You can track NAV.

Gold mutual funds invest in gold instruments. They follow global prices. So they reflect market movement in a clean way. This helps you plan better.

» Why you should avoid direct funds
You asked for a suggestion on a gold mutual fund. Before that, I must explain direct plans. Direct plans look cheaper. But they do not give guidance. They do not give support. They do not give personal strategy. They do not offer handholding.

Direct plans also invite more mistakes. You may enter at wrong times. You may exit early. You may get confused with market noise. These mistakes cost far more than the small cost difference.

Regular plans through a qualified Mutual Fund Distributor with a CFP background give you support. You get guidance for allocation. You get goal clarity. You get review sessions. You get behaviour support when market falls. All these help you avoid loss due to wrong decisions.

Even many investors who use direct plans later shift to regular plans after seeing behaviour mistakes. The support you get through a CFP trained MFD is far more valuable than the small cost gap.

» Why index funds and gold ETFs are not ideal for you
You have not asked about index funds here. But you have asked for a gold mutual fund. Many people mix gold ETFs or index-style gold options with gold mutual funds. So I must explain the disadvantages.

Index-type products follow the market without active thought. They just copy the index. They cannot control risks actively. They cannot handle market shifts. They cannot take advantage of specific opportunities. You get no active guidance.

Index funds also create a sense of “easy and cheap”. But they leave you alone during tough markets. You may panic and exit. You may invest at wrong points. This increases your risk.

For gold ETFs, you also need a demat account. You also see brokerage cost. You may also get lower liquidity compared to units in mutual funds.

Actively managed gold mutual funds through regular plans give clarity, flexibility, and guidance. They help you stay aligned to your long-term purpose.

» How gold mutual funds work
Gold mutual funds invest in gold. They follow global prices. They move similar to international gold prices. When gold rises, these funds rise. When gold falls, these funds fall.

They aim to offer easy access to gold without physical risks. They allow SIP. They allow lumpsum. They allow long-term holding with purity assurance.

Gold mutual funds also remove the need for demat account. They also offer better liquidity. You can redeem fast if needed.

» Short-term behaviour of gold funds
Short-term gold movements can be sharp. Gold may fall even when the world fears. Gold may rise even when markets calm. This is normal. Gold reacts to many global signals at once.

If you enter gold with a short-term view, you may feel confused. You may see ups and downs. This is why gold needs patience.

Short-term charts can distract many investors. But you are not seeking trading. You are seeking long-term safety balance. So you can ignore short-term noise.

» Long-term behaviour of gold funds
Over long years, gold protects value. Gold grows with inflation in the long run. Gold supports portfolios in global stress periods. Gold reduces big falls.

Gold also supports asset mix. Gold improves risk-adjusted returns. Gold may not beat equity in long run. But gold reduces shocks. This helps keep your mind stable. This helps you stay invested in growth assets without panic.

When you hold gold for long periods, it smoothens your experience. This is useful for Indian investors who face both global and local volatility often.

» Tax rules for gold mutual funds
Gold mutual funds follow debt fund taxation. You pay based on your income tax slab. There is no special rate for long-term or short-term. This is fine because gold funds are for balance. They are not for tax advantage.

When you redeem, tax applies on your gain. If you stay long, your tax impact reduces due to compounding benefits. So planning matters more than tax.

» How to enter gold mutual funds
A simple SIP is useful for gold. It avoids timing stress. It helps you buy at different levels. It helps you stay steady.

You can also add lumpsum slowly. You can add over few months. This helps avoid high price entry risk.

Always link your gold allocation to your total portfolio. Do not buy gold based on fear. Buy based on asset balance.

» How to choose a gold mutual fund without naming schemes
Since I must not name any scheme, I will guide you on selection features:

– Choose a fund with steady tracking quality.
– Choose a fund with simple structure.
– Choose a fund that follows global gold prices cleanly.
– Choose a fund with high transparency.
– Choose a fund with stable performance history.
– Choose a fund managed by a reputed fund house.
– Choose through a regular plan via an MFD with CFP background.

These points ensure the fund will reflect gold’s nature well.

» Why regular plan through a CFP-trained MFD is better
You get guidance for allocation. You get help in understanding gold cycles. You get reminders for review. You get behaviour support in panic times. You also stay aligned to long-term goals.

Many investors lose money not due to product. They lose due to behaviour mistakes. Regular plans offer a support system. This reduces mistakes. This increases discipline. This improves long-term outcomes.

» How gold fits into a 360 degree financial plan
Your gold allocation should link with your full picture. Here is a simple 360 degree view:

– You may have equity funds for growth.
– You may have debt funds for stability.
– You add gold funds for crisis protection.
– You review this mix yearly.
– You adjust based on life stage.
– You keep goals at the centre.
– You avoid emotional decisions.
– You avoid unnecessary churn.
– You invest with steady discipline.

This is a healthy long-term plan. Gold acts like a seat belt. You may not feel it daily. But it protects you during sudden shocks.

» When gold funds may not suit you
Gold funds may not suit you if you expect fixed returns. Gold funds may not suit you if you want fast growth. Gold funds may not suit you if you want constant upward movement.

Gold funds work best when you show patience. Gold funds work best when used with clear allocation rules. They are not stand-alone wealth engines. They are balance tools.

» What some investors misunderstand
Many think gold will always rise. That is not true. Gold moves in cycles. It may rise fast in crisis. Then it may stay flat for long. So long-term use is better than short-term bets.

Some think gold replaces equity. That is wrong. Equity builds wealth. Gold protects wealth. Both are needed in right mix.

Some think physical gold is the best. But physical gold has high cost and low purity trust. Gold funds are cleaner and safer for long-term.

» Why now can still be okay for gold
You may worry that prices are high. But gold is not a trading tool. Gold supports your overall plan. So even if prices feel high, long-term use justifies entry.

Gold also moves in global cycles. Global stress is still active. Many central banks may slow interest rate shifts. Inflation stays uneven. This makes gold still relevant.

So entering gold now through SIP or staggered steps is fine. You focus on long-term role, not today’s price.

» Finally
You are thinking very wisely. You are asking before acting. This is a good sign. Gold funds are useful when used in the right proportion. They offer stability. They offer balance. They offer purity. They offer easy access.

Choose a gold mutual fund through a regular plan. Use guidance from an MFD with CFP background. Keep your allocation between 5% and 10%. Use SIP for steady entry. Review yearly. Stay patient. Link to goals.

With this approach, gold will serve you well. It will protect your portfolio during tough phases. It will also help your long-term discipline.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in

https://www.youtube.com/@HolisticInvestment