Executive Assistant, LXME
In the last few years, we have heard so much about digital currency and the benefits of crypto. Social Media tells us that cryptocurrencies and blockchain technology are the future of investing. But what is crypto? How does it work? Should one invest in cryptocurrency? And most importantly, how does it compare to mutual funds?
To have all these doubts cleared, let’s understand cryptocurrency and mutual funds individually and the differences between them:
Cryptocurrency is a virtual currency that exists online and can be used by people to make direct payments to each other. This means that there is no financial authority or government that issues them, they are made, distributed, and exchanged electronically by people across the world. Some examples of cryptocurrencies include Bitcoin, Litecoin, Ethereum, Ripple etc.
Features of Cryptocurrency
1. Makes use of Blockchain technology
Blockchain technology simply means that there is an online system where all transactions made using cryptocurrencies are being recorded. This system is public and can be accessed by everyone.
2. Its value is dependent on demand
The value of cryptocurrencies is derived from the demand for them among investors. When demand increases, its value increases!
3. It can only be traded
Unlike normal currency, cryptocurrency cannot be used at your local kirana store (general store) to buy groceries. However, you can trade them by using a third-party cryptocurrency exchange.
4. It is unregulated
Cryptocurrencies are not regulated by any financial, governmental, or regulatory institution.
On the other hand, Mutual Funds collect money from several investors and, as per the investment objectives of the mutual fund scheme, put this pooled money into equity, debt, gold, etc. Investors can invest in mutual funds with as little as Rs. 100/- and get units allocated for the amount invested.
Features of Mutual Funds
1. Regulated by SEBI
Security and Exchange Board of India (SEBI) requires all Mutual Fund houses to comply with its regulations to ensure investor protection.
Mutual funds offer diversification as they invest in various instruments basis the scheme type like equity, debt, and gold
3. Two ways of investing
You can invest in mutual funds periodically through SIP (Systematic Investment Plan) or all at once through Lump Sum. You can begin investing in mutual funds with just Rs. 100!
4. Professionally managed
Mutual Funds are managed by professional fund managers who actively monitor your investments and aim to generate returns.
You can check out LXME’s time and goal-based portfolios which are diversified, well-researched, and curated by experts.
Crypto Currency Vs Mutual Funds
|A digital currency that exists on a decentralized network.
|A pooled sum of money that is expertly put into a portfolio of securities.
|Not regulated by any authority.
|Regulated by the Security and Exchange Board of India.
|Extremely risky and prone to fraud.
|You can select how much risk you want to take by choosing a scheme suited to your preferences.
|Fluctuating returns due to extreme volatility.
|Aims to generate returns depending on the scheme chosen by the investor.
|You must invest yourself by choosing which currencies to invest in
|Your fund manager invests in equity, debt, gold etc. on your behalf. Moreover, if you invest through LXME, you can get access to expert-curated Mutual Fund schemes!
|It is not a legal tender and is difficult to liquidate because it involves selling on decentralised, third-party platforms.
|Can be redeemed on requirement.
As financially aware women, we must always ensure that our hard-earned income is being invested in a way that all our goals are being met. So, before making the choice between investing in cryptocurrency vs. mutual funds, we should first think about our risk appetite.
There is a huge risk involved with crypto currencies as they are not regulated, they may give you huge returns but they may also wipe away all your savings in a jiffy. If you’re truly interested in investing in cryptos, you should first plan and invest for all your critical goals like planning for an emergency fund, retirement, and child education (if you’re a mom).
Once you’ve done this, then you can put your ‘idiot’ money (money you are okay to lose) towards crypto currencies. This way even if you end up losing the money you’ve invested in crypto, it won’t impact your financial stability. The return benefits of crypto are only exciting if you’ve done proper research and are extremely careful with how much of your money you put into it.
In comparison, the advantages of mutual funds are that they are regulated and easier to liquidate. They are professionally managed by experts and designed to generate returns. Further, mutual funds can diversify your investments across different asset classes such as equity, debt, gold, etc.
To sum up, both these instruments are very different. As women investors, we need to be clear on our goals and appetite for risk-taking. It’s always good to exercise a lot of caution when dealing in cryptocurrencies and to diversify your portfolio to manage risk and optimise returns.
What are your thoughts on cryptocurrencies? Let us know in the comments!
What factors should one consider before selecting a mutual fund scheme?
Firstly, you should look at your risk appetite, investment goals, and time horizon. Then, some important factors to consider are the size of the fund, its performance, consistency of performance, the track record of the AMC, etc. Based on these parameters, you can make a decision on which mutual fund scheme to invest in.
By investing through LXME, you can get access to expert-curated Mutual Fund schemes!
Should one invest in cryptocurrencies?
Ideally, investing in cryptocurrencies is not recommended as they are unregulated. Instead, you can put your money into mutual funds. They are regulated and managed professionally and you can start investing with as little as Rs. 100.
What are some of the risks of investing in cryptocurrencies?
Some of the risks associated with cryptocurrencies are an unregulated market, extreme fluctuations in value, technical problems, and the likelihood of fraud.
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