Virtual vs. Original

We live in times when people have numerous investment options that present a strong wealth creation potential and generate greater returns than the traditional investment options.

Investors can have both sides of the spectrum i.e traditional financial assets (mutual funds) to emerging digital options (cryptocurrencies/bitcoins).

Cryptocurrencies have gained a lot of popularity in India since last 5 year as more investors try their luck in the lucrative virtual coin trading space. However, from a pure investment point of view, the risks associated with cryptocurrencies are high as the virtual coin market faces higher volatility. Cryptocurrencies are risky assets and wild price swings are common in the virtual coin trading space. You need to have a big risk appetite to gain from crypto trading.

The most important thing to understand here is that a currency is just a place to park money. The currency itself is not an investment.

Here is a performance graph of a cryptocurrency (Bitcoin):

Bitcoin is the first virtual currency which was launched in 2009.From the above graph you can see that the Bitcoin value in January 2021 was 21.6 lakh and in between the period of 1^st Jan to 22^nd June a peak of 50 lakh was seen but by the time of 22 June a downfall of approx. 50% was seen in bitcoins without any global circumstances.

Hence, the price of cryptocurrencies fluctuates wildly, making it a risky investment. Everything that happens in the coin market is in one way related to the demand and supply, and also other factors such as legalization, the technology behind a coin, popularity and what future it holds.

Thus the approach for investing in financial instruments is much different. In mutual funds, the performance is calculated based on the type of resources it is investing into, the top holdings, age and how the overall performance has been for the past three to five years.

Secondly, it also depends on the risk appetite of the person, if the person is in his old age and wants to invest his savings in regular income schemes then cryptocurrencies investment is not even an option for him.

On the other hand, if the person doesn’t want to take too much risk and invest in schemes which give really good returns he may consider the option of investing in equity mutual funds, in which if remain invested for a longer period give a good amount of returns.

Below is the Nifty 50 five years performance graph which clearly shows the consistent growth throughout the period without much flucations.

Therefore,you must invest in mutual funds over bitcoins. It is a tangible investment backed by physical and financial assets, unlike cryptocurrencies which derive value from speculation. Mutual funds are regulated by SEBI and may offer stable returns over time suitable for all type of investors. Hence, you must not invest in bitcoins unless it becomes legal tender and gets regulated in India. 

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*Mutual Fund Investments are subject to market risk, read all scheme related documents carefully.

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