Crypto Mutual Fund
Table of Contents
Cryptographic technology can transform a variety of facets of our financial lives. Simply said, cryptocurrency has enormous promise as a technology and an investment. However, investing in cryptocurrencies is a little more challenging than doing so in equities or bonds because they are a more recent asset class. Cryptocurrency is typically difficult to purchase through a traditional brokerage and difficult to hold in a retirement plan. Thankfully, things are beginning to change. With the emergence of cryptocurrency mutual funds and exchange-traded funds (ETFs), investors can now access cryptocurrencies through a more conventional investment account. In this article, you will find everything that you need to know about crypto mutual funds. So, keep reading!!
Table Of Content
- What is a crypto mutual fund?
- Pros and cons of cryptocurrency mutual funds
- Crypto mutual fund vs ETF: key differences
- How to invest in cryptocurrency mutual funds?
- Are there any tax implications of investing in a crypto mutual fund?
- Frequently asked questions
What Is A Crypto Mutual Fund?
A cryptocurrency mutual fund is a grouping of bitcoin assets sold as a single investment.
For those of you who are not familiar, mutual funds are professionally managed portfolios that contain stocks, bonds, and other instruments. To invest in mutual funds, investors pool their resources. Investors receive a varied portfolio in a single investment because these funds incorporate several assets.
There is an expense ratio for each mutual fund, which is the cost of investing in it. A percentage of the assets managed makes up the expenditure ratio.
Like conventional mutual funds, cryptocurrency mutual funds operate on the same principle. The key distinction is that they were created mainly to invest in cryptocurrencies and other assets related to the cryptocurrency industry.
A cryptocurrency mutual fund, for instance, might invest in a well-balanced mix of many of the most popular kinds of cryptocurrencies. However, due to rules set by the Securities and Exchange Commission (SEC), none have done that as of yet. Instead, funds invest in futures contracts linked to cryptocurrencies to track their price.
Pros And Cons Of Cryptocurrency Mutual Funds
Cryptocurrency mutual funds offer advantages and disadvantages. The following are their main advantages:
- It’s simple to buy them. Like cryptocurrency equities, mutual funds may be purchased using a brokerage account, making them an easy method to invest in cryptocurrencies. Most cryptocurrencies require a report on a crypto exchange to be purchased.
- They can assist you in creating a varied portfolio. Mutual funds, which invest in various assets, are a smart method to diversify and lower risk. Due to the limited possibilities, you can’t diversify much with cryptocurrency mutual funds today, but this might change if additional funds are approved.
- Prices for cryptocurrencies can rise quite quickly. The cryptocurrency industry is renowned for its volatile prices. One of your most successful investments may be a cryptocurrency mutual fund.
- Using tax-advantaged retirement plans, you can invest in them. A 401(k) or an IRA cannot be used to purchase Bitcoin directly, but you can invest in a Bitcoin mutual fund.
Let’s now examine the major drawbacks of cryptocurrency mutual funds:
- Almost none are readily available. There is only one Bitcoin mutual fund at the moment. You’re out of luck if you’re seeking a fund that holds a variety of cryptocurrencies.
- The price of cryptocurrencies fluctuates greatly. Cryptocurrency values could rise significantly, but they could also fall. With a crypto mutual fund, you’re still taking on many risks even though investors typically purchase them to diversify their risk.
- The cryptocurrencies are not yours. A cryptocurrency mutual fund’s pricing might not exactly match the price of its cryptocurrencies because it makes investments in futures contracts.
- Expense ratios can be high. The Bitcoin Strategy ProFund, the only example we have so far, levies a fee of 1.15%. Any percentage over 1% is regarded as high.
Crypto Mutual Fund Vs. ETF: Key Differences
Due to their similarities, bitcoin mutual funds and exchange-traded funds (ETFs) are frequently confused. Additionally, a cryptocurrency ETF (exchange-traded fund) pools client funds, invests in various assets, and levies cost ratios.
The main distinction between cryptocurrency mutual funds and exchange-traded funds (ETFs) is their pricing.
- The share prices of ETFs constantly change throughout trading hours. The cost of an ETF depends on when you initiate a trade.
- Prices for mutual funds are set once each trading day. Regardless of the precise moment they were placed, every trade that processes during a trading day has the same price.
ETFs and mutual funds operate differently when it comes to trading. Like with stocks, you can buy and sell shares of ETFs. You can buy and sell mutual funds for particular dollar amounts.
How To Invest In Cryptocurrency Mutual Funds?
A business organised as an investment fund is known as an investment trust. Investors may purchase a predetermined number of shares, either privately or publicly. It combines that cash and invests with it. Trusts that specialise in investing in cryptocurrencies are known as cryptocurrency trusts. In that they enable investors to take a more hands-off approach, they are comparable to mutual funds. Before investing in a bitcoin trust, make sure to look into the costs. For instance, the annual fees for the Grayscale trusts range from 2% to 2.5%, so you’re paying a lot for their convenience.
ETFs that invest in cryptocurrencies are another sort of managed fund. They invest in cryptocurrency futures contracts and try to follow the value of one or more digital assets. Here are a few of the most popular cryptocurrency ETFs:
- The SEC first approved cryptocurrency ETF was ProShare Bitcoin Strategy ETF. It has an expense ratio of 0.95% and tries to follow Bitcoin via Bitcoin futures contracts.
- A smaller Bitcoin ETF that also makes investments in Bitcoin futures contracts is the Valkyrie Bitcoin Strategy ETF. It has a 0.95 per cent expense ratio.
Consider crypto-adjacent funds if you’re willing to take a more indirect approach to invest in cryptocurrencies. These are mutual funds and ETFs with investments in businesses dealing with cryptocurrencies.
- Companies invested in the Amplify Transformational Data Sharing ETF. It has a 0.71% expense ratio.
- Reality Shares Nasdaq NexGen Economy ETF aims to invest in businesses that create, investigate, or use blockchain technology. It has a 0.68% expense ratio.
Are There Any Tax Implications Of Investing In A Crypto Mutual Fund?
Because the Reserve Bank of India has not yet legalised cryptocurrencies, they cannot evade taxes (RBI). Investors who profit from the sale of cryptocurrency must pay income tax.
If classified under capital gains:
Investment-related cryptocurrency transactions will be recognised as capital gains or losses under the heading of “capital gain.”
If the sale price is higher than the cost, the transaction is said to have a “capital gain,” but if the price is lower than the sale price, the transaction is said to have a “capital loss.”
By the applicable income tax slabs, short-term capital gains tax may be owed if cryptocurrency assets are kept for less than 36 months. Cryptocurrency assets will be regarded as long-term investments and subject to a 20 percent tax rate with an indexation benefit if they are sold after three years (> 36 months) of holding the investment.
In case of capital losses:
The proper way to address capital losses has not been specified by the income tax authorities. However, if your selling transaction resulted in a loss, we suggest that you consult a specialist.
If classified as business income:
It’s crucial to think about how the Goods and Services Tax (GST) legislation may be impacted when considering whether to declare cryptocurrency transactions as firm income. All direct and indirect expenditures may lower the profits from the sale of the crypto assets. After being combined with the other income, the earnings throug cryptocurrency will be taxed at the appropriate income tax slab rates.
The growth of cryptocurrency funds is positive for digital assets, but you should be aware of all the risks and conduct your research before investing. In light of this, ideally after reading this post you now have a better notion of whether you want to invest in a cryptocurrency mutual fund.
Frequently Asked Questions
What is the minimum investment amount for a crypto mutual fund?
The minimum investment amount for a crypto mutual fund differs from fund to fund depending upon the type of cryptocurrencies that they are made of. In general, the minimum investment amount starts from Rs. 100-500.