What are Bitcoins?

To understand bitcoins we first need to understand what are cryptocurrencies.

Cryptocurrencies also known as digital currency are known as lines of computer code that hold monetary value. Governments have no control over the creation of cryptocurrencies, which is what initially made them so popular.

Most cryptocurrencies begin with a market cap in mind, which means that their production will decrease over time thus, ideally, making any particular coin more valuable in the future.

Bitcoin was the first cryptocurrency ever invented in 2009 by a developer named Satoshi Nakamoto.

Other coins created post it are called altcoins and are named as Ethereum, Litecoin, Peercoin, Feathercoin.

Bitcoin can be stored on a person’s computer hardware that is offline and this is referred to as cold storage. The currency can also be stored online which is referred to as hot storage (the risk is high of being stolen).

What are Mutual funds?

Mutual funds work in a way as investment vehicles where many investors pool in their money and this money then is invested into various financial instruments such as stocks, shares of companies, bonds and debt instruments which will generate more wealth depending on the market situations.

Mutual funds are managed by fund manager as to where the money needs to be invested and what will bring more profits. Certain regulations by the government to come into the picture when returns need to be taxed and there are various sections which govern these regulations.

How to Invest in Bitcoin and Mutual Funds?

There are 2 ways to make investments in bitcoins

  1. Buy BTC(Bitcoin) and hold them until you make profit and simply sell them. This can be done through various platforms such as zebpay, uncoin, coinsecure.It’s no doubt that whoever invested in the initial coin offering of the bitcoins are now millionaires and have gained millions by a mere investment of ₹50,000 or less.The currency has sky-rocketed since its launch in the year 2007, and people are still continuing to invest in a hope that someday it would make them rich.The era was nothing more than a technology gold rush and whoever invested is now a millionaire. You can also start investing in coins like Bitcoin by using different exchanges and platforms.There are few trusted platforms in the market such as Poloniex and Coindesk, that help you start investing in the coins.For the Indian market, Unocoin is known for BTC investments, however, the reviews by other investor aren’t pointing towards a positive feedback. Investors are advised to analyze each and every platform before signing up or start investing, and we neither endorse or criticize any platform.
  2. Mining: If you have some old computers that are lying around without any use, you can convert them into mining machines and start earning the crypto coins. Depending on your hardware capacity, coins can be collected to make profits.However, there is an issue with that. First of all, in order to do that you need to be familiar with basics of computers. You need to analyze the capabilities of your hardware and see if there is any profit that you can earn after deducting monthly operating cost and electricity bills.Each of the coins requires a different set of hardware. For Bitcoins or Litecoins there are some specifically tailored machines that can mine the coins at much faster speed than an average computer.However, on the flip side, a powerful computer with good graphics cards is required to mine the coins in Ethereum network.If you are not comfortable with setting up your own gear at home and start mining, there are some online companies as well which help you set up your mining system instantly in the cloud, to which you pay monthly subscription charges depending on the computation power you have rented.

Investing in mutual funds

Mutual funds can be purchased directly from a mutual fund company, a bank, or a brokerage firm.

Before you can invest you will need to have an account with one of these institutions prior to placing an order.

The process of buying a mutual fund can be done over the phone, online, or in person if you are dealing with a financial representative.

To place an order, you would indicate how much money you want to invest and what mutual fund you want to purchase.

What are the Risks Involved in Bitcoin and Mutual Funds?

Risk involved in Bitcoin

  1. The cryptocurrency market is highly unstable, and it can make you rich in a day or destroy everything you ever invested within a fraction of a second.Look at the classic case of Ethereum, at the beginning of the year 2017, the price was close to approximately $40, which later increased to approximately $400 and now it’s currently trading at $200 which is about ₹14,000.
  2. Another example of what could go wrong in the crypto coin realm is the case where an exchange dropped the price of one ETH coin to $0.10 and triggered the stop loss set by investors.
  3. The base of these crypto coins, Blockchain, is in its very early phase and there is a potential for mass adoption.South Korea and few other countries are already moving in a direction to legalize bitcoins.These kinds of activities promote the market value of a coin and in return provides good returns to the investor.
  4. It is a game of risk assessment and time for which you can keep your money invested. There have been few speculations in the market pointing towards a huge appreciation of Bitcoin value.Some analysts believe that the Bitcoin prices can go up to as high as $100,000 which is close to 70 Lakhs Rupees as per the current exchange rate.

Risk Involved in Mutual Funds

  1. Mutual funds firstly depend on market conditions. So before investing in mutual funds it’s very important to look into the investments done by the mutual fund, which sectors is the fund investing, how is that sector performing. For example in Quarter 2 and 3 of 2018 Automobile companies are expected to perform better for introducing electric vehicles.So a thorough analysis needs to be done before investing and this kind of analysis has helped many investors gain large amounts of returns.Ideally, 3-5 years are expected to gain a good amount of return of around 30% in mutual fund investments.
  2. Also the risk in this is comparatively low, since here we know who is governing mutual funds and also we get to know on a daily basis the NAV(Net Asset Value) of mutual fund which helps us decide on whether to stay in mutual fund or withdraw our amount.
  3. Another important thing to note is that under section 80C, investment in mutual funds (ELSS) of upto INR 1.5 Lakhs is exempted from tax which is not the case in bitcoins. No doubt lot of regulations are present in mutual funds, but this makes it comparatively less risky than bitcoin investment.

Is Bitcoin Legal in India?

Bitcoin trading is still not legal in India. Soon the Government of India is said to be planning to introduce laws where earnings from cryptocurrencies would be put under an income tax slab allowing acceptance of BTC in the market.

Right now, you can use Indian or foreign exchanges to invest and redeem the money, however, just like the exit loads in the mutual funds, BTC exchangers also take up a percentage to convert the amount to USD. The amount can be transferred directly to your bank or PayPal account.

Bitcoin or Mutual Funds: Which to Invest in?

Well, it depends, whether you are a seasoned investor or recently started buying and how much you know about the crypto market.

Approach for investing in financial instruments is much different than investing in the cryptocurrencies. 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.

Whereas in the 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.

At Groww, if you open any of the portfolio or mutual funds you can see all the factors that are affecting returns on your investment, whereas with the crypto coins factors change within minutes and prices fluctuate every second.

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

On the other hand if the person doesn’t want to take too much of 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 good amount of returns.

Parameters of comparisonBitcoinMutual Fund
Legal aspectNot legal in IndiaLegal
Risk takenLot of risk(since government also doesn’t intervene)Subject to market conditions, but compared to bitcoins lower risk
Returns on investmentVery unstable, value of BTC can change within secondsComparatively stable (with the help of expert advice high growth returns can be expected)
Withdrawal mechanismNot so easy (takes lot of time)Easy and amount can be withdrawn at any time(provided applicable tax)
TransparencyNot sure whether it is commodity or currencyTransparent based on the value of NAV and other holdings seen through various websites.

A simple rule of Warren Buffet goes here “If you don’t understand it, don’t invest in it”. No matter large amount of risk is taken in bitcoins, but the fact that cryptocurrecy is still in its nascent phase in many countries, so the probable solution is to wait and watch how things turn out to be in favor or the other way round for bitcoins.

Conclusion

One bitcoins are investments which may give you higher returns as seen from many examples these days, but these are also the ones which are highly unpredictable here goes the saying higher the risk, higher is the return.

To try out your luck, you can start investing in the ETH or BTC, as relatively these are the most stable coins in the market right now.

However, when it comes to mining, mining ETH is much more profitable as the overall complexity is much lesser than that of BTC. Later you can convert all your earnings from ETH to Bitcoin and wait till it touches the roof.

Two mutual funds investments are growing rapidly in India, due to the fact that these are more regulated investments and tend to bring in returns that are stable over the years, except changing market conditions.

Of course there are pros and cons of investing in mutual funds as well, but these type of instruments are very transparent as compared to bitcoin. When taken help from an expert these can help in gaining long term returns and stable and sustainable growth in the fund’s value.

How to Invest in Mutual Funds?

Investing in mutual funds online is very simple and paperless. Simply log in to your Groww account, choose fund, and invest using net banking – exactly like you would when shopping online.

Happy investing!

Disclaimer: the views expressed here are those of the author. Mutual funds are subject to market risks. Please read the offer document before investing.