Cryptocurrency Vs Mutual Funds: Where to invest?

May 19, 2022 Fortuna Capital

Cryptocurrencies are digital assets that allow investors to profit by buying and selling them, just like any other currency, commodity or digital asset. While mutual funds, as their name indicates, are investment vehicles funded by shareholders that trade in diversified holdings and are professionally managed. 

This article will cover the investment options in cryptocurrency & mutual funds in India and see what challenges to investing in these financial vehicles. We will also comment on mutual funds investing in cryptocurrency and mutual funds in India.

Why should you invest in cryptocurrencies?

Cryptocurrency investments have become very popular in recent years. People and companies that trade digital assets such as Bitcoin, Ethereum, Cardano, Litecoin and thousands of other cryptocurrencies in the crypto market.

The price of these tradable assets depends on a series of factors but, basically, on supply and demand. Unlike fiat money, cryptocurrencies do not rely on a centralized financial system governed by the country’s central bank.

Cryptocurrencies are a new type of tradable asset in the market, gaining more and more popularity and acceptance globally. The acceptance of cryptocurrencies in India has grown exponentially.

The country ranks second globally in cryptocurrency adoption, according to the global Chainalysis index. The report considers the use of digital assets by ordinary people who save or transact with crypto.

If you want to learn more about this topic, read our article Why you should invest in cryptocurrencies.

Why invest in mutual funds?

Investments in mutual funds are made in various assets such as stocks, debt, commodities, metals and others. The firms that manage these funds are in charge of carrying out the necessary technical analyses on the most attractive investment areas and negotiating the securities themselves.

Mutual fund managers are a service for investors who don’t have time or don’t know how to manage their money. In exchange for a percentage or service fee, these professional firms manage investments with the promise of potential returns.

Being legally established and regulated companies, they offer possibly higher guarantees to the investor regarding the safety of their money. It is a service based on expert knowledge of the market, transparency, liquidity and the possibility of diversifying the investment portfolio.

In addition to these factors, there are other reasons to invest in mutual funds, such as:

Convenience. Investments in mutual funds are easy to do. Less paperwork is required, and investors can buy most mutual funds online. Financial advisors also sell mutual funds to their clients.

Changes in fund schemes and portfolio rebalancing can be done frequently. This serves to keep returns within the investment strategy and expectations.

Low initial investment. If you adopt a SIP plan (Systematic Investment Plan), it is possible to start with a meagre investment of 500 rupees. 

Lesser taxes. A great deal of money can be saved on taxes through these investment instruments, as mutual funds are tax favourable structures.

Optimal fund management. The investor has the security of placing his money in the hands of professional administrators. The investments are based on an investment plan on values ​​carefully selected by experts, which guarantees greater possibilities of returns.

You will also find all these advantages in mutual funds investing in cryptocurrency.

What are the differences between cryptocurrency and mutual funds?

Here are some of the differences between these two investment options:

• Cryptocurrencies are more often than not purchased and managed directly by traders. At the same time, the money from investment funds is raised from third parties and managed professionally.
• Digital assets are unregulated products in India. Instead, mutual funds are recognized and regulated by the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI).
• Investments in mutual funds encompass stocks and bonds.
• The returns on digital assets are higher than any other traditional asset traded in the markets today.
• Returns on non-crypto currency investments managed by mutual funds depend on critical elements such as asset allocation, market behaviour, and investment objective.
• Cryptocurrency trading has low costs, contrary to the costs of investment funds. Mutual fund costs are variable depending on your expenses and exit load.

Things to Consider Before Investing in Mutual Funds in India

As with any financial product, experts recommend that you need to keep some factors on the top of your mind for selecting a mutual fund. 

• Investment plan (direct or regular) and objectives.
• Risk levels are associated with the category of the chosen mutual fund.
• Experience and reputation of the fund manager.
• Consistency of fund returns.
• Use of the SIP option requires contributions to be made on a regular and automated basis and allows for better long-term returns.
• Fund Expenses and Service Fees.
• Asset allocation with regular portfolio rebalancing.
• Investment prospects.

You will need to consider these things when investing in any cryptocurrency mutual fund in India or any other jurisdiction.

What are better cryptocurrencies or mutual funds?

Both have associated risks. Cryptocurrencies have high volatility and lack regulation, and various frauds and cybercrimes have increased in the crypto space. Mutual funds can generate low volatility returns and also lower returns. 

However, some consider mutual funds, in general, to be less risky to invest in, including the mutual fund investing in cryptocurrency. Risk factors and portfolio management have to play a vital role in deciding if you will be investing in cryptocurrencies or mutual funds.

Cryptocurrency Mutual Funds in India

Crypto mutual funds aren’t possible in India at the moment. However, cryptocurrency mutual funds will likely be approved in the future.

For a bold investor who prefers a diverse portfolio of low-risk, medium-risk, and high-risk/return assets to not miss out on massive returns in this new asset class like cryptocurrencies, the mix of both investment options is well suited. That is, you can invest in cryptocurrencies and crypto mutual funds at the same time when it launches as such in India, mainly under SEBI’s approval.

The bad news is that SEBI has banned crypto mutual funds in India until there is a law to regulate virtual assets. If SEBI gives the go-ahead, a crypto mutual fund might operate similarly to a traditional mutual fund. Instead of stocks and bonds, it has different classes of crypto assets in its portfolio.

What are the crypto mutual fund options in India?

As long as cryptocurrency trading is unregulated in India, the options for Indian investors in crypto mutual funds will be limited or non-existent. Bringing the SIP-like features of a mutual fund to crypto might provide exposure to crypto an entirely new set of people and help build the nation’s wealth. If crypto mutual funds get approved in India, we will see a massive spike in the uptake and acceptability of these digital assets. Over the last couple of decades, mutual funds in India have made stock market investing extremely accessible to people and similarly cryptocurrency mutual funds in India have the potential to open up crypto asset investment opportunities to the masses