As soon as Bitcoin prices start going up and it’s all over the news, people starting asking questions like:
- Bitcoin vs Mutual Funds: Where Should You Invest?
- Bitcoin vs Mutual Funds: Which is better?
- Should I invest in Bitcoin or Mutual Funds?
But I will not beat around the bush. In the debate of Bitcoin Vs Mutual funds, I can easily say that for almost all investors, investing in mutual funds is much better than investing in Bitcoins and other cryptocurrencies. Plain and simple.
We all know Bitcoins and other cryptos are highly risky. And I mean really very high levels of risk here. Unless you are comfortable seeing your Bitcoins fall 80% or more from their highs once every few years, you are not meant to invest in cryptocurrencies.
Definitely given the highly volatile nature, you do have a small chance of winning big (At times Bitcoin has been called New Gold or Gold 2.0). Like a kind of lottery (that many believe it to be). But that is accompanied by a very high chance of losing it big too. As they say, high risk and high reward are 2 sides of the same (Bit)coin.
Look, I am not saying the mutual funds are risk-free. But these are comparatively much safer than unregulated Bitcoins. Given the nature of equity markets, the returns of equity mutual funds will be higher and more volatile than debt mutual funds. But the volatility is nowhere close to what is there in the crypto market. For a lack of better work, the volatility in cryptos is absolutely crazy. One-day falls of 20-40% in Bitcoin price are pretty regular. Compare this with the worst one-day falls of Nifty and worst one-day falls of Sensex that happen once every few years.
So if you are a risk-averse investor, then there is absolutely no need to invest in Bitcoins for you. If you want, you can still play with it for a few thousand bucks but nothing beyond that.
On the other hand, if you are looking at it from a more serious angle, then your exposure should depend on your risk tolerance, ability to digest sharp swings with Bitcoin prices correcting 20-30% in a matter of hours (or 80% from highs regularly), available financial resources, enthusiasm, your belief, familiarity with and understanding of cryptocurrencies among other things. It might be 0-5% in such cases. Also, if you are unsure about investing lumpsum in Bitcoins then one can even consider going for SIP in Bitcoin to systematically purchase some Bitcoins every month or week. But if in doubt, then treat it as sin money and just play with what you are willing to lose fully. Also, do read What percentage % of portfolio to invest in Bitcoins? for a more detailed discussion on this topic.
You might also want to read about differences in Bitcoin Vs Altcoins and how to go about choosing which Altcoin other than Bitcoin to invest in? Or more specifically, you may want to read my detailed article comparing the two major cryptocurrencies of today, i.e. Bitcoin Vs Ethereum: Which to choose? Also read – How to split portfolio allocation % between Bitcoin, Ethereum, and Altcoins?
I am sure you might ask here – Are there any cryptocurrency mutual funds in India? Or are there any Bitcoin mutual fund in India?
The answer is no. As of now, there are no cryptocurrency mutual funds available in India that invest solely in cryptocurrencies. Also, there are no mutual funds that have even a small exposure to Bitcoins or other cryptos in India. And there are no Indian mutual funds investing in Bitcoin in India or anywhere else in the world.
How can you invest in Bitcoins (BTC) in India? You either buy/sell these on many of the cryptocurrency platforms in India. Or you get into Bitcoin mining. But the latter won’t be easy and will require a large technological infrastructure.
To be honest, I don’t want to get into any comparison between Bitcoins and mutual funds as these are two very different animals. But people do compare their options based on parameters of returns. And no doubt Bitcoin does hog a lot of limelight these days when it comes to returns.
Bitcoins may be a new-age asset class that is coming of age. But given the risks involved, I would say that it’s better to invest a major chunk of your financial investments in mutual funds, which is more stable, reliable, regulated, and a well-established instrument.
By the way, in crypto lingo, Buy-and-Hold is often termed as HODL. In case you are ever confused What is HODL?
Since we are talking about holding for the long term, do read about this at Should you Buy & Hold Bitcoin for 10 Years?
Now comes the question of the legality of Bitcoin in India? There are still some doubts. There is a constant policy flip-flop here and it’s still not clear what the government wants to do in this space. At times, it virtually bans it (RBI in 2018). Then it overturns the ban (Supreme Court 2020 here). At times they want to ban everything and launch government-backed crypto. As of now, the government is still contemplating a bill on cryptocurrencies that may provide the final dose of clarity. Do read Is Bitcoin legal in India?
For now, don’t get into the debate of Bitcoin or mutual funds. Instead, simply focus on your financial goals and how to reach them by investing properly in established asset classes like equity and debt. How can this be done? By getting yourself a proper financial plan that tells you how much to invest (like how much SIP calculator), where to invest, for how long to invest, and answers all the tough questions that need to be asked to put a person’s financial life on track. And if after that you have some extra money left and want to take some exposure to Bitcoins to try things out, then so be it. Go ahead and do so.
Related Reading: Should you invest in Bitcoin in India?
So that’s all about what I wanted to say about it Bitcoin or Mutual Funds: Which to Invest in India (2021)? I hope this gives you some clarity about what’s the best investment option – Bitcoins or mutual funds?