Bitcoin, ever since its inception has been taking the world by storm while the conventional and traditional market grew at its own pace. Investors, who have been on both sides of the spectrum (Bitcoin and Mutual Funds), often compare the new kid in the town a.k.a “Bitcoin” to the old legend, Mutual Fund to decide which one is the right investment.
India hosts the oldest stock market exchange in the whole of Asia i.e.Bombay Stock Market (BSE). There are many Indian traders who have been trading in Mutual Funds for a long time. However, with the rising popularity of Bitcoin in India, many of these traders are now getting second thoughts due to the lucrative 3-4 figure profit percentage that Bitcoin has gained in the last 1 year.
So in this article, we are going to help you decide which one you should invest in, especially in India. So let’s get started. But before this, let’s learn a few basics.
What is Bitcoin?
Bitcoin is a virtual/digital currency that is powered by blockchain technology. It was created by a pseudo-anonymous identity with the name Satoshi Nakamoto after the traumatic event of the 2008 Financial Crisis. Bitcoin was created with the intent of being a global currency that is not controlled by any person, government, or organization and cannot be manipulated. A decade later, seems like it is on the right path, or some would consider the right destination.
What are Mutual Funds
Mutual Funds, as the name suggests, are the funds that are shared mutually by many investors. An investment is said to be a Mutual Fund when many investors put in their money to buy a large chunk of stocks or even bonds, securities, T-Bills, etc. In this way, every investor owns a share of all stocks and bonds the mutual fund has. However, mutual funds are overseen by experienced fund managers and investment firms who decide what to buy, when to buy and how much to buy.
How to Invest/Get Bitcoin
Ever since its inception, Bitcoin has been on a rising streak making everyone want a piece of it or let’s say a ‘satoshi’ (smallest individual unit of Bitcoin). Also, the kind of media coverage that Bitcoin has lately been getting, the demand for Bitcoin is increasing day by day.
1. Mining
Mining is a way of earning Bitcoin by dedicating your computer to facilitate Bitcoin transactions. In the Bitcoin mining process, your computer solves heavy mathematical calculations and then you get Bitcoins in return. Bitcoin mining in India is getting a lot of attention from many tech enthusiasts. To mine Bitcoin, you need a mining rig and other physical hardware devices.
To know more about Bitcoin Mining in India
2. Buying/Selling
Bitcoin mining in India can be an expensive capital investment. However, the other way to own Bitcoin in India is by simply buying it via a crypto exchange. A crypto exchange is a marketplace where you get Bitcoin buyers and sellers. Buying and selling Bitcoin in India is currently not illegal. You can use the Cofinex P2P Platform to buy Bitcoin in India for as low as 500 INR. Cofinex P2P platform allows multiple payment methods like UPI payments & Bank Transfers to buy Bitcoin in India.
To buy Bitcoin on Cofinex P2P in India –
How to Invest in Mutual Funds
Mutual Funds have been in the Indian markets for a very long time. There are multiple ways through which you can invest in Mutual Funds in India. To invest in mutual funds, you need to make sure that you have your identity documents with you for the KYC approval process.
1. Directly visiting AMC Office
AMC (Asset Management Company) is an organization that invests people’s money into mutual funds. You can simply visit their nearby office in your location and submit an application along with your identity proof to invest in the mutual funds of your choice. Some of the prominent AMC in India are Axis Asset Management Company Limited, Kotak Mahindra Asset Management Company Limited, Motilal Oswal Asset Management Company Limited and Tata Asset Management Company Limited.
2. Investing Through Offline Brokers
You can also take the help of an offline broker by simply calling him and asking him to invest in mutual funds. Such brokers are highly equipped with the current trends in the market and can advise you from an investment perspective. In return, they will charge you a fee which will be cut from the overall investment amount.
3. Investing through Online Brokers
Unlike the offline brokers who charge relatively quite high, we have the online brokers whose commission on mutual fund investments is quite low. We have many online brokers like Zerodha, Angel Broking, UpStox, and Motilal Oswal who offer such online mutual fund investment services. All you need to do is visit their website, create an account, do the eKYC verification and make the payment.
Difference Between Mutual Funds & Bitcoin
Bitcoin and mutual funds are often considered to be different from each other. Despite the fact that many financial institutions are investing in Bitcoin to hedge their funds, people still see Bitcoin be different from mutual funds.
That being said, given the kind of strong interest that financial institutions are showing up for Bitcoin, the day is not far when Mutual Funds will also have Bitcoins under its umbrella. For now, let’s consider them as a different class of assets and see the difference between them.
1. Hidden Charges
If you are investing in Bitcoin via mining, then there is more than meets the eye. Mining Bitcoin can be an expensive investment due to the cost of building mining rigs. Minings rigs need ASIC or GPU devices which cost anywhere from 60,000 INR to 2,00,000 INR per device. Also, these devices consume a lot of electricity. Hence, the electricity cost also needs to be added. Apart from that, Mining rigs occupy physical space. Hence, the rent charges should also be included.
Investing in Bitcoin via crypto exchange has a relatively lower amount of hidden charges in the form of trading fees (maker fee and taker fee) which usually varies from 0.2% to 0.02% of the trading volume. In the case of buying Bitcoin in India, you can use the Cofinex P2P platform which charges ZERO% of trading fees.
However, there are multiple hidden charges when it comes to buying Mutual Fund in India. Some of them are entry/exit loads and expense ratio. Entry/Exit loads are the charges when you make an entry in the mutual fund or exit from the scheme. The expense ratio comprises the expenses like AMC advisory fees, transfer agent fee, custodian fee, and other operating costs.
2. Returns
This is the part where Bitcoin takes an edge over Mutual Funds. However, that being said, from the risk point of view, the story is quite different. Bitcoin, in the last 1 year, has grown by a whopping 641% from a 5,80,000 INR asset (in March 2020) to a skyrocketing 43,00,000 INR asset (in February 2021). However, if we compare Bitcoin performance with the Mutual Funds in India, Bitcoin still outperforms them.
The biggest mutual fund return in the year 2020 in the Indian market was the ICICI Prudential Technology Fund with a return of 88%. However, it still fell behind BItcoin’s rally. But even this brilliant return in the Mutual Fund is an outlier to the actual reality. In fact, the average return on Mutual Fund investment in India has been anywhere between 5% to 13% according to LiveMint report which stands nowhere in front of the returns of Bitcoin.
3. Risks involved in Bitcoin and Mutual Funds
Like we discussed in the previous section, the risks involved in investing in Bitcoin are greater as compared to investing in Mutual Funds. Mutual Funds consist of many assets in their bucket and hence, any kind of market fall is being neutralized by the performance of other funds. However, this is not the case with Bitcoin. The bitcoin market is highly volatile with market prices sometimes swinging all the way down to even 30-40% in a single day.
Legality of Bitcoin in India
Buying Bitcoin in India is not illegal. However, Bitcoin is also not considered a legal tender in India. But so is every other asset, even Gold. Bitcoin, in India, is finding its way hard to please the financial regulators due to their risk-averse nature.
India had earlier taken a hard stance towards Bitcoin way back in March 2018 when the RBI (India’s central bank) had advised all the commercial banks in India to avoid facilitating Bitcoin-INR transactions to all the crypto exchanges working in India.
The decision was soon challenged by all major crypto exchanges in India and 2 years later, in March 2020, the Supreme Court of India lifted the crypto restriction. Currently (as dated 5 March 2021), the Indian government is working on a “Crypto Bill” to start regulating cryptocurrencies in India which will be shared in the Parliament budget session soon. It’s time to wait and watch.
Conclusion
Bitcoin and Mutual Funds have their own differences. But it is important to understand that they both have room for further more developments from a financial product’s perspective. Mutual Fund is a concept, a bucket with people’s money invested in many assets. Bitcoin can be one of those assets in the future. Hence, the current trend of having a faceoff between Mutual Fund and Bitcoin may not even be relevant in the future once Bitcoin starts getting more mass adoption in the world and other mainstream financial institutions start realizing Bitcoin as a means to hedge their funds.
FAOs on Bitcoin vs Mutual Funds
- So should I invest my whole money in Bitcoin since Mutual Funds don’t give good returns?
Investment in any kind of asset should be done with thorough research and according to your risk appetite. Many financial experts appreciate the idea of spreading your investment in different asset classes instead of going all in. Hence, you need to analyze your investment options and then make a move. - I want to invest in both Bitcoin and Mutual Funds. I can buy Bitcoin via Cofinex. But how can I buy a Mutual Fund?
There are many options to buy Mutual Funds in India. Like we mentioned in this article itself, you can download apps like ZERODHA, SHAREKHAN & PayTM to invest in mutual funds. Or else, you can simply visit AMC offices and buy their mutual funds directly. - Can we have a mutual fund where Bitcoin is a part of it?
This is one of the hot debates that is being discussed in the financial world right now. However, as such, there is no mutual fund that has considered Bitcoin in its portfolio. However, many companies have been looking in this direction and in the future, if regulations are softened, we might have a mutual fund scheme that hosts Bitcoin in this portfolio. - So in the end, where should I invest? Bitcoin or Mutual Funds? Final Words?
There is no such final word when it comes to investment since every trader is different. However, Bitcoin and Mutual Fund are both different classes of assets which different risks and returns. It is up to the trader how much risk he can take. Mutual funds are meant for those investors who are risk-averse in nature. However, Bitcoin is meant for those investors who like to broaden their portfolio and want to hedge their funds, and are ready to take a bit more risk.
