Gold mutual funds or equity funds: Return comparison over 1, 5 and 10 years

The one asset class that benefitted the most from trade wars and recent equity market volatility was gold. Besides trade wars, the past year witnessed interest rate uncertainty in the US, a slowing Chinese economy, tensions in the Middle East, and an election-driven atmosphere in India — all of which made the markets somewhat fragile and benefitted gold price.

Gold has always been considered a safe-haven asset during periods of market volatility. Over the last year, gold prices have jumped by more than 35%. On April 22, the yellow precious metal breached the psychological Rs 1 lakh mark in the Indian market. Prices have softened slightly since then. This stupendous rise in gold prices, both domestically and internationally, also helped gold mutual funds clock massive gains during this period. Gold has always been a reliable option, and this time too, it lived up to expectations and delivered good returns.

Looking at the performance of gold mutual funds over the past year, the average return of as many as 39 funds has been around 25%. In this write-up, we will compare the returns delivered by gold mutual funds with key equity mutual fund categories such as large-cap, mid-cap, small-cap, and flexi-cap.

Also read: Top 5 SBI mutual funds with highest SIP returns in 10 years

Let’s compare gold mutual funds with large-cap equity funds based on 1-year, 5-year, and 10-year performance. It should be noted that the returns are based on the average performance of the respective categories.

Gold Mutual Funds vs Large-Cap Funds

Gold mutual funds have delivered average returns of around 24.79% in the last 1 year, 13.23% in 5 years, and 11.65% in the last 10 years.

In comparison, the average return in the large-cap funds category has been 9.48% over the last 1 year, 23.44% in 5 years, and 12.36% in 10 years.

This comparison shows that gold mutual funds have delivered better returns than large-cap equity funds in the last one year. However, over 5 and 10 years, large-cap funds have performed better.

Gold Mutual Funds vs Mid-Cap Funds

The average return from mid-cap funds has been 9.82% in the last one year, 31% over 5 years, and 16% over the last 10 years.

This comparison shows that gold mutual funds outperformed mid-cap funds in the last one year but lagged behind over 5- and 10-year periods.

Gold Mutual Funds vs Small-Cap Funds

Small-cap funds as a category have delivered average returns of 6.5% in the last one year, 35.52% in 5 years, and 16.67% in the last 10 years.

Again, gold mutual funds outperformed small-cap funds over the past year. However, over 5 and 10 years, small-cap funds have significantly outperformed gold mutual funds.

Also read: Top gold ETFs in India to consider investing

Gold Mutual Funds vs Flexi-Cap Funds

The average return in the flexi-cap mutual funds category stood at 9.42% in the last 1 year, 23.87% in 5 years, and 13.18% over 10 years. This shows that gold mutual funds have underperformed flexi-cap mutual funds in the long term but have had an edge in the short term.

Summing up…

Overall, it can be said that gold mutual funds have delivered good short-term returns (up to 1 year) and have performed consistently over 3, 5, and 10 years. However, when compared to equity mutual fund categories — large-cap, mid-cap, small-cap, and flexi-cap — they have generally lagged in long-term performance.

Now, let’s talk about risks and benefits.

Gold mutual funds are suitable for investors who prefer low risk. They are less affected by stock market fluctuations and offer protection against inflation. However, their performance depends entirely on the price of gold. Equity mutual funds, on the other hand, carry more volatility, but in the long run, they have the potential to grow your wealth significantly — provided you stay invested with patience.

Also read: Best Motilal Oswal Mutual Funds: Top 3 schemes deliver up to 29% returns in 1 year

So, which fund is right for you?

If you’re a cautious investor with short-term or quick cash needs, gold mutual funds can be a safe and stable option.

But if you’re investing for the long term and can withstand market ups and downs, equity mutual funds may be a better fit for you.

The right investment choice depends on your needs, risk appetite, and investment horizon. And yes, a little research and a little patience always pay off.