Bitcoin has recently surged, both in value and in popularity among Indian investors. As this cryptocurrency rallied, it has caused a stir in the Indian market. Retail investors are now turning towards this new asset class due to high return expectations. While a couple of years back, buying/selling of Bitcoin would have been impossible for most, today, the dynamics have completely changed, allowing retail investors to explore this newfound investment avenue.
Mutual funds, however, continue to remain one of the most preferred investment options among Indian retail investors. There is a growing debate among investors whether to stay invested in mutual funds or explore options like Bitcoins. Here, we will explore the key differences between these two investment options to help investors make an informed decision.
What is Bitcoin and how to invest in it?
Meaning of Bitcoin
Bitcoin is a type of cryptocurrency. It is a virtual money that comes in digital format, like an online variant of cash. People can use Bitcoins to buy products and services depending on whether it is accepted. This currency format uses cryptography to ensure its security.
How does Bitcoin work?
Every Bitcoin acts as a computer file that is safely stored in a ‘digital wallet’ app that can be downloaded on a smartphone or a computer. An investor can send Bitcoins to another’s digital wallet with every transaction getting recorded in a public register, also known as the blockchain.
This way, one can trace back the history of Bitcoins to ensure that no one spends coins that they do not actually own or make copies of it or undo any transactions. In India and also globally, not many marketplaces accept Bitcoins, with some countries even banning its usage.
How to invest in Bitcoins?
One can invest in Bitcoins using either of these two ways:
- Through mobile apps
Bitcoin can be bought and held till an investor makes a profit, after which, he/she can sell them. One may do this using different platforms like Zebpay, Uncoin, etc.
There are also other Bitcoin platforms, including Poloniex and Coindesk. Investors must carefully analyze the platform before starting to invest in Bitcoins.
Crypto coins can also be collected by mining them, which is a very energy intensive and a time consuming process.The coins that can be collected for profits depends on the computer’s hardware capacity.
It is important to note that every type of crypto coin requires a different type of computer hardware. For example, Bitcoins require specifically customised machines to mine the coins at a higher speed as compared to an average computer.
Those who do not know the process of setting up the mining gear at home can reach out to specialized companies who can do the same. By paying them monthly subscription fees, individuals can get the process set up with the company’s expertise.
What are mutual funds, and how can one invest?
Meaning of mutual fund
A mutual fund pools money from investors to further invest the pooled funds in different financial instruments. Some of these financial instruments include stocks, bonds, debt instruments, etc. Mutual funds may generate wealth depending on the fund’s investment avenue and prevailing market conditions.
How do mutual funds work?
Mutual funds (MFs) are actively managed by fund managers who use their professional knowledge and experience to allocate the pooled funds such that they can earn returns that are higher than the benchmark chosen by the fund.
Mutual funds are regulated by SEBI and the earnings from these investments are taxable as per prevailing tax regulations.
How to invest in mutual funds?
Mutual funds can be bought directly from an AMC or Asset management company or an investor can download the Fisdom app to explore a range of mutual fund options. The process of investment on the app is very simple and involves selecting a mutual fund investment and proceeding towards KYC formalities before making the initial investment.
Difference between Bitcoin and mutual funds – know where to invest
The table below highlights the key differences between Bitcoin and mutual funds.
|Risk of investment||Bitcoins can involve high levels of risk due to legality, no surety on its acceptance, and liquidity levels.||Mutual funds come with different risk levels, ranging from very high risk to very low risk, depending on the type of fund and investment strategy. Investors can invest in a fund depending on his/her risk appetite.|
|Investing timelines||Anytime, 365 days a year, 24/7. No restriction on entry.||Time-bound trading and investment as per market functioning hours.|
|Cost of investment||Minimal investment cost.||High investment cost that includes transaction cost, expense ratios of funds and also exit load.|
|Legality||While Bitcoins are legal, they have not yet been recognised by the government as an investment avenue.||These are legal and come under the regulation of Securities and Exchange Board of India / SEBI.|
|Returns||Unpredictable and erratic returns.||Relatively predictable especially if one considers the historical performance of the scheme.|
|Regulation||Not regulated.||Regulated by SEBI.|
|Exiting of investment||Due to lower liquidity, especially in the Indian markets, exiting the investment may be difficult.||Mutual funds can be liquidated depending on the type of fund and associated exit load cost.|
Although Bitcoins are quickly catching the Indian investor’s attention, most experts advise against investing in them unless an investor can entirely follow the investment. Only the future can tell whether these will compete against investment avenues like mutual funds which offer far more safety of capital in comparison.
With the arrival of Bitcoin, a type of cryptocurrency, a new asset class emerged in the investment markets across the globe. Investors can explore this avenue to diversify their portfolio after fully understanding how it functions, how it generates returns, and what level of risk it involves.
A crypto exchange is a platform that facilitates buying and selling of digital currencies like Bitcoins. Crypto exchanges are mostly self-regulated and operate 24*7 around the year.
No, mutual funds are not permitted by SEBI to invest in Bitcoins, since these are not yet legalised in India.
Investors can invest directly in stocks, bonds and other securities if they want alternative avenues to mutual funds. For risk-averse investors, there are also traditional investment avenues like bank FDs, PPF, NPS, etc.
Bitcoins are considered to be risky investments as these are highly volatile, unregulated, and are not actual currencies or backed by any currencies.