When it comes to long-term investments, most Indian investors oscillate between the safety of gold and the growth potential of equities. But what if you find out that gold mutual funds have outperformed large-cap equity funds in the last few years?
This is what the recent data says — gold funds have given better returns on average over most periods, be it 3 months, 1 year, or 3 years. There is only one time period where equity funds have been ahead — that is 5 years, and that too due to the post-COVID market boom. The performance in 10 years of both gold mutual funds and large-cap mutual funds has been almost similar.
But before reviewing the returns of gold mutual funds and large-cap equity funds, it’s important to understand why we are comparing a commodity-based fund with an equity-based category. The reason is that gold is widely perceived as a safe-haven investment, and similarly, large-cap equity funds are generally considered more stable and less volatile than other equity fund categories. So, let’s see how gold mutual funds and large-cap equity funds performed over different periods.
Also read: Gold mutual funds or equity funds: Return comparison over 1, 5 and 10 years
Where did gold funds outperform?
The average returns of gold mutual funds (a total of 39 schemes) were as follows:
3 months: 12.66%
1 year: 31.46%
3 years (CAGR): 22.41%
5 years (CAGR): 14.44%
10 years (CAGR): 12.43%
On the other hand, the average returns of large-cap equity funds (a total of 173 schemes) were:
3 months: 11.24%
1 year: 7.56%
3 years (CAGR): 17.51%
5 years (CAGR): 21.19%
10 years (CAGR): 12.57%
Note: 5-year returns are looking better in equity because the stock market had fallen to a low level during Covid and when recovery happened after that, the sharp bounce from a low base boosted equity returns.
Also, the average return in the gold mutual funds category is similar to that of individual funds because the NAV of these funds is directly linked to the price of physical gold. On the other hand, there is a wide variation between the average return of large-cap equity funds and that of the top-performing schemes. This is because equity funds invest in a variety of companies, and their returns depend heavily on the fund manager’s stock selection.
As a result, while some large-cap funds have individually outperformed gold funds, on average, gold mutual funds have delivered higher returns in recent periods.
Also read: 5 top-rated large-cap mutual funds with lowest expense ratio in 2025
For instance, not a single large-cap equity fund out of 173 schemes was able to beat the average return of the gold mutual fund category, which stood at 12.66% over 3 months and 31.46% over 1 year. During these periods, the best-performing large-cap equity fund managed to deliver 14.50% and 26.43%, respectively.
When we look at 3-year returns and compare individual large-cap equity funds with gold funds, only 5 out of the 173 schemes managed to outperform gold funds, while 168 underperformed.
However, the picture changes over 5 years. All 173 large-cap equity funds outperformed the gold fund category during this time. The lowest return among large-cap schemes was 17.45%, compared to an average return of 14.44% for gold funds. It’s important to note, though, that these strong 5-year returns in large-cap funds were partly due to the rebound from Covid pandemic lows.
As for 10-year returns, only a handful of large-cap equity funds have comprehensively outperformed gold mutual funds. Most others have delivered returns comparable to those of gold funds.
Also read: Best Motilal Oswal Mutual Funds: Top 3 schemes deliver up to 29% returns in 1 year
What does this mean for your portfolio?
Gold and equity have different investment roles. Gold is an inflation-protected asset and safe haven in times of market uncertainty or geopolitical tensions. Equities give you a stake in companies and offer long-term wealth creation.
History shows that the correlation between gold and equity is weak or even inverse. This is why most investment advisors recommend a balance of the two in your portfolio.
However, remember — gold does not provide any income (neither dividends nor interest), and does not provide direct benefits of economic growth like equities do. Still, gold does reduce portfolio volatility — especially for investors with a low risk appetite.
Don’t invest based on past returns
It would not be wise to invest your entire portfolio in gold based on today’s superior returns. The recent rally in gold prices is driven by global uncertainties, interest rate expectations and currency price fluctuations — which may not last forever.
On the other hand, equity funds — though volatile — are vital for capital appreciation in the long term.
Benefits and risks of both — at a glance
Benefits of gold mutual funds:
-Safe investment option in times of global tension or recession
-Inflation hedge
-Less volatility than equities
-Ideal for protecting capital
-Ideal for investors with a low risk appetite or near retirement
Risks of gold mutual funds:
-Dependent on physical gold prices, which can be volatile in the short term
-No regular income (no interest, no dividend)
-Investing too much in gold can lead to missing out on long-term growth
-Prices are sometimes affected by government policies or fluctuations in the US dollar
Benefits of large-cap equity funds:
-Opportunity to invest in India’s largest companies
-Long-term wealth creation potential
-Benefit from economic growth and company profits
-Some funds can also provide dividend income
-Ideal for investors with a moderate risk appetite
Risks of large-cap equity funds:
-Market Returns can be affected by the volatility of the fund
-Performance depends on the fund manager’s strategy and the stocks
-No guaranteed returns, linked to market cycles
-Investment time horizon of 5-10 years or more is required
Also read: 4 Motilal Oswal funds are dominating! 1-year returns leave peers far behind
Final advice: strike a balance between the two
Even though gold mutual funds have delivered better returns on average in recent years, it is not wise to put your entire investment in gold based on this alone. Past performance does not guarantee future returns — especially in an asset class like gold.
On the other hand, large-cap equity funds play an important role in beating inflation and building wealth in the long term.
A smart investment strategy is not just about asset selection, but asset allocation. Hence, a balanced mix of gold and equity — as per your risk appetite, investment time horizon and financial goals — may prove to be best for you in the long term.
Disclaimer: The above content is for informational purposes only. Mutual Fund investments are subject to market risks. Please consult your financial advisor before investing.