These days, it seems the world can’t stop talking about cryptocurrencies! We’re not referring to aliens, we mean bitcoin for example! Bitcoin seems to be the in-thing. However, how much do people really know about bitcoin? Is bitcoin really the best thing to happen to investment?
This article is a healthy comparison between bitcoin and mutual funds.
We demonstrate six ways in which mutual funds are a better investment option.
It’s been pretty difficult to analyze bitcoin investing because of its extreme volatility. The price is largely unpredictable and investment is mostly based on speculation. Bitcoin can make you rich in a day or destroy everything you’ve ever invested in a split second.
Mutual funds, on the other hand, are a much safer option to invest in. Information is readily available, projections can be made on the market and is to a large extent, stable.
- CURRENCY OR COMMODITY?
Neither a currency nor commodity, Bitcoin has been described as an alternative asset. But the question is, what is an alternative asset and how can be it used? Bitcoin is a computer-based means of transaction, and not an approved currency. This makes it difficult to define the nature of bitcoin in absolute terms. In the words of Economist S.P Sharma; It can be very risky for businesses, industry, and people to trade or invest in bitcoins as it is just a formula, not backed by any actual asset, but by sheer demand.
Mutual funds involve actual assets and transactions are made in approved and accepted currencies only.
Although bitcoin has not been declared illegal, there’s the underlying confusion about its legal status. This is to a large extent tied to the fact that it is not an approved currency. Also, bitcoin is known for anonymity. It’s like investing in something you really don’t have a hold of, with people you do not know.
On the other hand, mutual funds are managed by fund managers. There is no anonymity or ambiguity in the investment process.
- REGULATORY BODIES
Unlike mutual funds, bitcoin is not regulated by government entities, banks or certified financial institutions. This simply means that in the case of transactional problems e.g. if you get ripped off in a bitcoin transaction, you bear the consequences 100%. There is no authority to which you may address your grievances, for redressal. It is impossible to get the money back.
- SAFETY AND SECURITY
Bitcoin is prone to illegal activity. This is due to a good deal of misinformation and lack of clarity as regards bitcoin trading. Fraudsters have taken advantage of these to either steal investors’ money or launch ‘get rich quick’ investment schemes.
In mutual funds, you are assured of the safety and security of your investment when you choose a credible manager.
- RISK AND RETURN ON INVESTMENT
The riskiest mutual fund is not as risky as bitcoin. With mutual funds, you can calculate the likely performance of your funds based on the type of fund, holdings, age and overall performance. Whereas everything that happens with bitcoin is largely a function of demand and supply.
Mutual funds are a much safer option to invest in than bitcoin. Get started with investing in mutual funds today.