There have been many changes in the financial services sector, thanks to advancements in technology. Today, you can transact online to pay, to buy, and even to invest.
Naturally, this has led to new-age digital trends too like easy-to-trade virtual assets that do not exist in physical format. They are not created or issued by the government or the central bank. Thus, they cannot be used as money or legal tender. However, some risks remain like:
- The value of such digital assets is not tethered to a real asset. As a result, their values—and your investment, as a result—can be subject to great volatility.
- Virtual assets are not regulated. Without government regulations, investors can be exposed to fraud and lose their money.
- Currently, these virtual assets attract one of the highest levels of taxation, as per the Union Budget 2022.
Mutual Funds, in comparison, have been around since 1924. Over the last century, MFs have been well-regulated and closely monitored for investor protection. There are also enough schemes available to suit different return and risk requirements. Plus, they are inherently diversified, thus, reducing the investor’s risk. Mutual Funds also come with the added benefit of attracting some of the lowest taxes among all investment options. (You can read about how Mutual Funds are taxed here.)
New trends always have a novelty value. They can, thus, seem quite attractive to investors. However, it’s important to weigh the risks too before investing your hard-earned money. Research thoroughly and decide if a particular investment option suits your risk profile and return expectations. Investment decisions are made for life and it’s worth spending some time in arriving at these choices.