Is gold a better investment than large-cap equity funds in India over long term?

Is gold a better investment than large-cap equity funds in India over long term?

Gold mutual funds have outperformed large-cap equity funds over the past three years, offering higher returns during periods of economic uncertainty. However, gold funds can be more volatile and are influenced by global commodity prices.

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 If someone has a lower risk appetite, increasing gold allocation can help reduce portfolio volatility. If someone has a lower risk appetite, increasing gold allocation can help reduce portfolio volatility.
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Business Today Desk
  • Apr 26, 2025,
  • Updated Apr 26, 2025 11:52 AM IST

I’ve been reviewing long-term returns and noticed that gold has delivered a CAGR of around 14% in India over the past 10 and 20 years, outperforming most large-cap equity mutual funds. Interestingly, this comes with much lower volatility than what we usually see in equity markets.

Globally, gold’s CAGR has been closer to 9-10%, but India seems to benefit from the rupee’s depreciation and a high inflation environment, giving gold an extra edge. This makes me wonder: Are index equity funds even necessary in a portfolio when gold offers similar or better returns with lower risk?

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I understand mid- and small-cap funds can outperform gold in some phases, but those come with higher risk too. Also, if one avoids buying gold as jewelry (to cut down on wastage and making charges) and opts for gold ETFs, digital gold, or coins, it seems like a cleaner, tax-efficient way to invest.

So, here’s my question:

Should I reduce my equity exposure and increase gold allocation in my portfolio, especially given its strong historical performance and lower risk profile? Or is there a strategic case for holding equity despite this?

Advice by Yash Sedani, Assistant Vice President, Investment Strategy at 1 Finance

Gold and equity serve very different roles in a portfolio. While gold is a hedge against inflation and offers tangible value with relatively lower volatility, equity provides long-term growth potential by offering exposure to the performance of businesses and the broader economy. Historically, gold and equities have had low or inverse correlation, meaning gold often performs well during periods of market stress, making it a valuable diversification tool. 

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However, gold does not generate income or represent ownership in a growing business. If you have a lower risk appetite, increasing gold allocation can help reduce portfolio volatility. 

But relying solely on gold could limit your participation in economic expansion and wealth creation that equities can provide. It’s also important not to base investment decisions solely on recent performance. The surge in gold prices has been influenced by geopolitical tensions, currency depreciation, etc, factors that may not persist indefinitely. Past performance, especially in gold, is not a guarantee of future returns.

Gold vs Large-cap mutual funds

Gold mutual funds have outperformed large-cap equity funds over the past three years, offering higher returns during periods of economic uncertainty. However, gold funds can be more volatile and are influenced by global commodity prices. Large-cap equity funds, while offering slightly lower returns, provide exposure to established companies and potential for dividend income.

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Fund Category    Top 3-Year Annualized Returns Gold Mutual Funds    20.51% – 19.79% Large-Cap Equity Funds    17.86% – 14.80%

Gold Mutual Funds: These funds have delivered strong returns over the past three years, benefiting from global economic uncertainties and inflationary pressures. Notably, LIC MF Gold ETF FoF – Direct Plan – Growth achieved an impressive annualized return of 21.90%.​

Large-Cap Equity Mutual Funds: While these funds have shown moderate performance, they still offer solid returns. Nippon India Large Cap Fund – Growth led the category with a 19.89% annualized return over three years.​ 

 

Gold Mutual Funds (3-Year Performance)

SBI Gold Fund – Regular Plan – Growth20.99%28.250.35%3,582High
LIC MF Gold ETF FoF – Direct Plan – Growth21.90%27.730.20%1,000High
Aditya Birla Sun Life Gold Fund – Regular Plan – Growth20.61%28.180.50%3,648High
Axis Gold Fund – Direct Plan – Growth20.88%30.770.17%944High

Large-Cap Equity Mutual Funds (3-Year Performance)

ICICI Prudential Bluechip Fund – Growth17.71%105.081.05%87,933Very High
Nippon India Large Cap Fund – Growth19.89%85.231.20%56,022Very High
Invesco India Largecap Fund – Growth15.50%65.290.80%1,329Very High
Canara Robeco Bluechip Equity Fund – Regular Plan – Growth15.07%69.600.80%14,965Very High

 

I’ve been reviewing long-term returns and noticed that gold has delivered a CAGR of around 14% in India over the past 10 and 20 years, outperforming most large-cap equity mutual funds. Interestingly, this comes with much lower volatility than what we usually see in equity markets.

Globally, gold’s CAGR has been closer to 9-10%, but India seems to benefit from the rupee’s depreciation and a high inflation environment, giving gold an extra edge. This makes me wonder: Are index equity funds even necessary in a portfolio when gold offers similar or better returns with lower risk?

Advertisement

I understand mid- and small-cap funds can outperform gold in some phases, but those come with higher risk too. Also, if one avoids buying gold as jewelry (to cut down on wastage and making charges) and opts for gold ETFs, digital gold, or coins, it seems like a cleaner, tax-efficient way to invest.

So, here’s my question:

Should I reduce my equity exposure and increase gold allocation in my portfolio, especially given its strong historical performance and lower risk profile? Or is there a strategic case for holding equity despite this?

Advice by Yash Sedani, Assistant Vice President, Investment Strategy at 1 Finance

Gold and equity serve very different roles in a portfolio. While gold is a hedge against inflation and offers tangible value with relatively lower volatility, equity provides long-term growth potential by offering exposure to the performance of businesses and the broader economy. Historically, gold and equities have had low or inverse correlation, meaning gold often performs well during periods of market stress, making it a valuable diversification tool. 

Advertisement

However, gold does not generate income or represent ownership in a growing business. If you have a lower risk appetite, increasing gold allocation can help reduce portfolio volatility. 

But relying solely on gold could limit your participation in economic expansion and wealth creation that equities can provide. It’s also important not to base investment decisions solely on recent performance. The surge in gold prices has been influenced by geopolitical tensions, currency depreciation, etc, factors that may not persist indefinitely. Past performance, especially in gold, is not a guarantee of future returns.

Gold vs Large-cap mutual funds

Gold mutual funds have outperformed large-cap equity funds over the past three years, offering higher returns during periods of economic uncertainty. However, gold funds can be more volatile and are influenced by global commodity prices. Large-cap equity funds, while offering slightly lower returns, provide exposure to established companies and potential for dividend income.

Advertisement

Fund Category    Top 3-Year Annualized Returns Gold Mutual Funds    20.51% – 19.79% Large-Cap Equity Funds    17.86% – 14.80%

Gold Mutual Funds: These funds have delivered strong returns over the past three years, benefiting from global economic uncertainties and inflationary pressures. Notably, LIC MF Gold ETF FoF – Direct Plan – Growth achieved an impressive annualized return of 21.90%.​

Large-Cap Equity Mutual Funds: While these funds have shown moderate performance, they still offer solid returns. Nippon India Large Cap Fund – Growth led the category with a 19.89% annualized return over three years.​ 

 

Gold Mutual Funds (3-Year Performance)

SBI Gold Fund – Regular Plan – Growth20.99%28.250.35%3,582High
LIC MF Gold ETF FoF – Direct Plan – Growth21.90%27.730.20%1,000High
Aditya Birla Sun Life Gold Fund – Regular Plan – Growth20.61%28.180.50%3,648High
Axis Gold Fund – Direct Plan – Growth20.88%30.770.17%944High

Large-Cap Equity Mutual Funds (3-Year Performance)

ICICI Prudential Bluechip Fund – Growth17.71%105.081.05%87,933Very High
Nippon India Large Cap Fund – Growth19.89%85.231.20%56,022Very High
Invesco India Largecap Fund – Growth15.50%65.290.80%1,329Very High
Canara Robeco Bluechip Equity Fund – Regular Plan – Growth15.07%69.600.80%14,965Very High

 

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