Real Estate vs Mutual Funds

Real Estate

Real Estate refers to mainly land, building and other area associated with it, the owner of the property have full control over it and is a tangible asset. The demand for real estate is growing and history shows that prices are always up up till last few years, most of financially sound persons you might have seen after business are made from Real Estate.

Mutual Fund

While mutual fund on the other hand is a pool of fund created for objects of wealth creation by means of investment is sectors with an investment strategy mentioned in its prospectus. The same is done by professional fund managers and is considered to be highly risky. It involves some charges and is highly transparent.

Common Points

Both Mutual funds and Real estate are :

  • Highly Risky
  • Depends upon Economy growth
  • Have tax benefits (Interest and principle deduction on housing loan and deduction on ELSS investments)

Things to check before Investment

However, there are some points which needs to be noted and think upon before making any investment decision.

  • Real Time scenario

If you look at the present scenario where real estate is lacking the boom and are in majority of areas are either stable or have negative returns while mutual funds are constantly performing and giving better returns. Though mutual funds are also risky but one may consider investments in debt funds or hybrid funds which are having lesser risk than equity and are constantly performing.

  • Frauds and litigation

As we have seen in recent past in Noida and adjoining areas builders are not able to deliver there products timely and are many are on line of bankruptcy due to lack of appreciation in real estate also there are many fraud chances in real estate deals while mutual funds are controlled and regulated by SEBI and are highly transparent these issues are unlikely to happen in mutual fund deals.

  • Better returns

A real estate investment can drive you maximum 7%-12% p.a. while an avg hybrid mutual fund do drive the return at 12%-14% p.a.

  • Transferability

In real estate mainly you allocate your funds into a single property and will have to stay investment long on same property without any transferability option with you while if you opt to invest in a mutual fund you have the flexibility to chose to transfer from one fund to another and vise versa giving to better opportunity to grow your funds.

  • Investment amount

Investment in real estate requires a huge capital amount to be invested on the contrary mutual fund investment can generally be done with even a small amount of even Rs. 500/- through SIP, which can be deposited monthly on auto mode.

  • Tax Benefits

There are income tax benefit on ELSS investment in mutual fund upto 1.50 Lac under section 80C while the in case of real estate if you take a house loan for real estate investment then only you get interest benefit upto Rs. 2 Lac on interest paid and upto 1.50 lac deduction under 80C for principal paid amount otherwise same is not available.

  • Liquidity

The Real estate deals are time taking deals you may not be able to liquidate the same very quickly in case there is urgent need of money while mutual funds are highly liquid and you can chose to withdraw or sell them online in case of urgent fund requirement expect for ELSS funds which carries a lock in period of 3 years.

  • Compounding

Due to the power of compounding applies on your mutual funds, if you invest lumpsum Rs 1,00,000 in mutual funds, which offer 12% p.a. for a tenure of 20 years, the returns generated will amount up to Rs 9.65 lakh at maturity which is generally absent in case of real estate.

  • Easy to Invest

Mutual funds are very easy to invest you can even do the same on finger of your hand on some apps like Paytm money, Zerodha etc. even directly through Mutual funds website, htrough SIP the amount of investment will be auto deducted from your bank account while real estate carries a lots of paper work and formalities which is quite tedious and time consuming activity.

  • Charges

Real estate registration involves quite high one time charges that includes Stamp duty, registration cost etc. while mutual funds carries very little operation cost generally between 1-2% along with diversity.

Most of the investor still consider real estate investment over mutual funds but due diligence needs to be done for better return over long run as this is your hard earned money and should be properly and safely used.

Also it depends on needs and circumstances, may be for a first home buyer it is better to go for house than mutual fund as its better than paying Monthly rent and there is nothing better than owning a own house but

For a person looking for investment for his idle money he might need higher returns than carefully selected mutual funds maybe a better option for better earnings.

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