Crypto assets and mutual funds are now one of the most popular instruments among young investors. However, each investment instrument certainly has its advantages. So, what sets crypto apart from mutual funds? Find out the answer in the following article.
- 💰 Crypto and mutual funds are two very different investment assets. Crypto is a decentralized digital currency. Meanwhile, mutual funds are a pool of investor money managed by investment managers to invest in various financial assets.
- 🔀 The differences between crypto and mutual funds include the level of volatility, risk level, potential profit, liquidity, convenience, diversification, and investment costs.
- 🚨 Both crypto and mutual funds have their advantages. Investors should select assets based on their investment objectives and risk profile.
The Difference Between Crypto and Mutual Funds
Crypto and mutual funds are two investment instruments with significant differences. Mutual funds are a pool of investor funds managed by professional managers to invest in various financial assets, such as deposits, bonds, and stocks.
While crypto is a decentralized digital currencies that use cryptographic technologies to ensure their security as a medium of exchange. Crypto generally does not have an underlying asset. Still, it is evaluated based on its technology and use cases.
Apart from the underlying assets, following are some of the differences between crypto and mutual funds:
1. The Level of Volatility
The most striking difference between crypto and mutual funds is the volatility of their price movements. As we know, crypto has very volatile price movements. In the short term, crypto prices can decrease or increase up to double digits.
Meanwhile, price movements are more stable for mutual funds, especially for the money market and bond-based asset classes. As for the stock class, it is likely to experience more volatile price movements. Even so, stock-based mutual fund price movements tend not to be as sharp as crypto asset price movements.
Diversification can be one way to deal with crypto market volatility. Find out how to diversify in the following article.
The higher the price volatility, the higher the risk of an investment instrument. For mutual funds, the risk can be divided into three types. The first is a low-risk product, which is a money market mutual fund. The second is a medium-risk product, which is fixed-income mutual funds. The third is a high-risk product, which is an equity mutual fund. The difference in risk for mutual fund products depends on their underlying assets. That is why the risk of equity funds is much higher than money market mutual funds.
Meanwhile, the risk is much higher for crypto assets than for all mutual fund products. As previously mentioned, crypto prices will likely experience a significant correction in the short term. The possibility of a loss pull or scam from a crypto token also makes the risk even more significant than mutual funds.
Speaking about the profits from investing, it depends on the risks. As the investment principle says, high risk means high return. Because the risks between crypto and mutual funds are different, so are the potential returns.
The profit potential from mutual funds will depend on the product type. If it’s a money market mutual fund, the returns will be small, only around 3-4% per year. Meanwhile, fixed-income mutual funds are slightly more significant in the range of 5-6% per year. Then, the return can reach more than 10% per year for the balanced and equity mutual funds.
The profits from crypto can be substantial, with returns that can be achieved in days or even hours, compared to mutual funds which take a year. During a bull run phase like 2020-2021, crypto investments have the potential to yield returns in the tens, hundreds, or thousands of percent.
Through the following article, you can get to know and learn more about various strategies for investing in crypto.
Another difference between crypto and mutual funds lies in their liquidity. Crypto is a much more liquid asset when compared to mutual funds. Crypto investors can sell their assets easily and quickly because the crypto market operates 24 hours non-stop daily.
Meanwhile, the sales process for mutual funds is not as instant as crypto. Most mutual fund products require at least 2-3 working days for redemption. Also, transactions cannot be made on weekends. Currently, only a few money market mutual fund products offer the instant redemption feature, meaning they can be sold instantly.
5. The Convenience Level
The level of convenience is another differentiating factor between mutual funds and crypto. With mutual funds, there is a fund manager who handles the portfolio, allowing investors to sit back and let the manager work.
In contrast, investors must manage their own portfolios when investing in crypto assets, relying on their expertise to make investment decisions, such as adding positions, replacing assets, realizing profits, and cutting losses to determine portfolio performance.
Having trouble choosing the right crypto asset to invest in? This article can help you.
Another factor that makes crypto and mutual funds different is diversification. Mutual funds are characteristically a collection of various assets. For example, there will be various company stocks in an equity mutual fund product. Thus, investors have diversified automatically when buying a mutual fund.
Meanwhile, for crypto, each purchase is only valid for one kind of crypto asset. For example, if investors buy BTC, the assets obtained are only BTC. So, if you want to diversify crypto assets, you must have to do it manually by buying lots of assets separately.
7. Investment Cost
The difference between crypto and mutual funds also lies in investment costs. Each investment manager has a minimum purchase limit for buying mutual fund products. Some products can be purchased with a minimum nominal value of IDR 10,000, IDR 50,000, and up to IDR 100,000. Meanwhile, for crypto assets, the nominal purchase is much cheaper. Some platforms set a minimum purchase nominal of IDR 10,000 for all types of crypto assets.
In addition, there are additional fees that must be paid when purchasing mutual funds. There are fees for investment managers and custodian banks. Meanwhile, for crypto, additional fees are limited to transaction fees.
Should you Invest in Mutual Funds or Crypto Assets?
As crypto and mutual funds are different investment instruments, you can’t compare which one is better. The reason is this will depend on the needs and risk profile of each investor.
The advantage of investing in mutual funds is the choice of various risks. So, investors can choose various products according to their risk profile, whether conservative, moderate, or aggressive. In addition, the advantage of investing in mutual funds is that there is a fund manager who can help manage the mutual fund portfolio.
Meanwhile, crypto can be an investment choice for investors with a very aggressive risk profile who are ready to face sharp price fluctuations. Investing in crypto can be a promising opportunity with profit potential that outperforms mutual funds. Crypto also has more choices of assets when compared to mutual funds.
Learn more about crypto and its supporting ecosystem in the following article.
Start Investing at Pintu
After knowing the difference between crypto and mutual funds, are you interested in buying crypto assets? At Pintu, you can invest in various crypto assets such as BTC, BNB, ETH, and others safely and easily.
Pintu is also compatible with popular wallets such as Metamask to facilitate your transactions. Download Pintu app on Play Store and App Store! Your security is guaranteed because Pintu is regulated and supervised by Bappebti and Kominfo.
In addition to executing transactions, in the Pintu Apps, you can also learn more about crypto through various Pintu Academy articles which are updated every week! All Pintu Academy articles are made for knowledge and educational purposes, not as financial advice.
Adam Hayes, Mutual Funds: Different Types and How They Are Priced, Investopedia, accessed on 27 January 2023.
Matt Hussey, What is Crypto?, Decrypt, accessed on 27 January 2023