People are always on the lookout for investment avenues with greater wealth creation potential and beat the returns that traditional options generate.
Over the decade, many new investment opportunities have opened up; some belong to the tradable financial asset (mutual funds, ETFs, bonds) and some in the emerging digital space (Bitcoin/cryptocurrencies).
They have certainly caught the imagination of investors all around the world. A meagre $100 investment in 2009 has grown worth over $10 million in 10 years’ time frame. No other asset class has even reached 1/10 of the scale of returns Bitcoin has generated, making it one of the best performing asset classes known to humankind.
But, compared to mutual funds, cryptos have very different governing laws and investing processes. So, let’s learn about Bitcoin investing and find out whether it is a better investment option than mutual funds or not.
What is Bitcoin?
Bitcoin is a peer-to-peer electronic cash system that helps you send and receive money over the internet securely and at a fraction of cost compared to the banking channel.
It is a global digital monetary system that functions independently of any central authority and is completely decentralized. Bitcoin is based on blockchain technology, which stores transaction records in several databases, known as chains, connected through peer-to-peer nodes.
Bitcoin’s uniqueness is in its constancy and that it is a fully trustless system. Meaning, the records in Bitcoin blockchain cannot be modified or changed, and nobody has to trust anybody to complete the transaction.
When was Bitcoin Launched?
Bitcoin was created by someone with a pseudonym Satoshi Nakamoto. It was launched in January 2009 with a supply cap of 21 million coins. To date, 18.4 million BTCs have been mined, and the last BTC will be mined in the year 2140.
The final 2.6 million units of BTC will require over 100 years to mine, whereas the first 18 million units were mined in the first 10 years.
The reason as to why it is linked to the process called “halving”. Bitcoin halving is integrated into its blockchain by design. Every 4 years, the amount of Bitcoin to be mined and miners’ rewards are halved, resulting in a decreasing rate of supply of new coins.
This feature also allows BTC to gain value, as it makes the already scarce asset scarcer.
Why are Bitcoins so Valuable?
Bitcoin is very different from traditional assets like gold and silver and is based on mathematics and is fully scientific.
However, it has all the properties (durability, portability, divisibility, fungibility, scarcity) to be called money and better in terms of fiat currencies. It is also counterfeit-resistant and an excellent store of value.
For this reason:
It has earned the title of digital gold.
The only factor that helps to determine its value is market demand and supply.
Read more about what determines the price of bitcoin.
What is a Mutual fund?
Mutual funds are professionally managed investment funds that invest in equity and debt securities or a combination of both. It pools funds from many investors and invests in securities as per the investment mandate of the scheme.
The company that manages the investment is called Asset Management Company and functions as per the market regulator’s guidelines.
How Are Mutual Funds Valued?
A mutual fund’s value is arrived at by dividing the value of all assets/securities in the portfolio minus liabilities by total outstanding units. The per-unit value is called NAV or net asset value.
The NAV of a mutual fund changes every trading day and is updated after the market’s close.
Comparative Analysis: Bitcoin Vs. Mutual Funds
How to Invest in Bitcoin & Mutual Funds?
Investing in Bitcoin is not as complex as people think. You only need to access a crypto trading app or platform like CoinSwitch Kuber to exchange your INR to Bitcoin.
Just like you sign-up with any e-commerce platform for buying products, in the same way, you can sign-up with a reliable crypto exchange using your email id or phone number. Following your KYC’s successful verification and completion, link your bank account details to successfully make a Bitcoin purchase using fiat currency (INR).
- What is the minimum amount of Bitcoin I can buy?
BTC’s smallest denomination is 1 satoshi, which is 0.00000001 BTC, but no exchange supports such a small denomination. The minimum amount of Bitcoin that I can buy varies from exchange to exchange.
For example, from CoinSwitch Kuber, one can buy Bitcoin worth ₹100 also.
Mutual Fund Investment
Investment in mutual funds can be either made through your financial advisor or online platform. Before investing in a mutual fund, you need to decide on the type of fund you want to invest in and choose a scheme type and an Asset Management Company.
Once you decided on all the points, you need to submit a filled-in form and KYC documents to invest. If doing it through your financial advisor, you need to give a bank cheque mentioning the investment amount, or if selected to online mode, you have to make an online payment.
- What is the minimum investment amount for investing in a mutual fund?
If making a lump sum investment (at once), the minimum investment amount is ₹5,000. And, if doing a systematic investment plan, the minimum investment amount is ₹100.
However, you should check with the respective fund house for the minimum investment amount before investing in any scheme.
Are There Any Cryptocurrency Mutual Funds?
No, at present, there are no cryptocurrency mutual funds available in the market. The current law discourages the launch of any cryptocurrency mutual funds in India.
The governments’ positive stance towards blockchain- the underlying tech behind cryptocurrencies might change this in the future.
Which is the Best Investment: Mutual Fund Vs. Bitcoin?
Both mutual funds and cryptos are very different investment options and cannot be measured or compared on the same scale.
However, one mantra that goes with every investment, i.e., always invest according to your risk profile and in only those options you understand fully.
Like mutual funds, which are subject to different types of investment risk, which can be controlled by actively managing the risk, but with cryptos, the scenario changes. It is completely based on market demand and supply.
Cryptos are known for high volatility but, if you believe in cryptocurrencies and understand the risks well, you can have a small share of cryptos in your investment portfolio.
Compared to the traditional asset class, cryptos are still new and are evolving as an asset class. But, certainly, it is one of the great digital assets for investment.
FAQs on Bitcoin vs Mutual Funds Investment
1. Which is Safer to Invest – Bitcoin or Mutual Fund?
Both cannot be classified as 100% safe.
Bitcoin and Mutual funds are tied to some level of risks. However, Bitcoin is riskier because of the market volatility, but at the same time it is gratifying as compared to Mutual funds
2. How to Invest in Bitcoin and Mutual Fund?
Investing in Bitcoin or Mutual funds is more or less the same. To invest in Mutual funds, you need to download either Fundzbazar or a similar platform and create a KYC’ed account after which you can choose to invest in any of the funds you like.
Likewise, to buy Bitcoin, you need to create an account on a cryptocurrency exchange like CoinSwitch Kuber. After finishing the KYC, you can begin your Bitcoin investments. Read in detail about how can you invest in bitcoin stock.
3. Which is a Better Option for Investment Bitcoin or Mutual Fund?
Bitcoin and Mutual Fund both are excellent investment instruments. However, they interest different sets of investors.
Mutual funds are for more conservative investors who are comfortable with average returns while Bitcoin is for aggressive investors who look for exponential returns.
However, having the right mix of high reward – high risk and low reward – low-risk instrument makes an ideal portfolio.
Still thinking about some other investment option like forex, then read our article on forex vs bitcoin.
4. Which is a More Profitable Mutual Fund or Bitcoin?
Bitcoins are more profitable. However, you should be aware that they also involve high risk.
Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user's own risk.
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