Real Estate vs Mutual Funds - which is the better option?| North Loop Official Blog
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02 Nov 2020

Real Estate vs Mutual Funds - which is the better option?

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What is a real estate investment?

Real estate investment refers to the purchase of land, building, apartments, houses or any other kind of physical property. The underlying asset in case of a real estate is tangible and the returns over time usually show growth of the principal invested.

What is a mutual fund investment?

Mutual funds are market-based instruments that invest in various financial securities like equity, debt etc. to generate returns. Depending on the allocation of mutual funds into different asset classes, they get classified into three categories, namely equity mutual funds, debt funds and hybrid funds, all of which come with varying risks and returns.

Before you question ‘should I invest in real estate or mutual funds’, take a look at some of the factors we have listed below that can help you determine the investment option best suitable to your needs -

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Performance -

According to data and reports submitted by several real estate research firms, the average ten-year returns on real estate investments has been around ten per cent. On the other hand, the return of mutual funds for the same period has been between 12 and 14 per cent. That gives a brief idea of the performance of both the investment options. Also, since inflation plays a significant role in wealth accumulation in the long run, both investment options provide varying returns. However, few experts consider that the power of compounding in mutual funds allows it to generate higher returns despite inflation.

Consistency -

Paying heed to the consistency of performance offered by both the investment options is necessary before opting for any of them. Real estate is known for its constant increase in value over time and independence to short-term fluctuations in the market. Mutual funds also boast of consistent and inflating-beating returns at moderate risks. Investing in the right mutual funds that offer desired returns with minimal risks can be beneficial. Both types of investments have the potential for high returns. The best way to decide amongst them is to evaluate your own immediate financial needs or requirements and also consider the investment horizon and goals.

Monitoring -

Tracking your investments well is a pre-requisite for a successful investing journey. While mutual funds can get monitored and tracked online, real estate might not offer that benefit. The inability to track the performance of your investment can sometimes become a deterrent, and therefore, it is best to choose options after weighing in this factor.

Quantum of investment -

If you are thinking ‘should I invest in real estate or mutual funds’ and are confused between the two, it is best to first begin by outlining your personal financial goals. The quantum of funds required for both the options differ significantly, and for choosing between them, it is necessary to determine your current financial needs and fund-availability. For investing in real estate, you usually have to invest a large amount of money. On the other hand, mutual funds offer the benefit of making investments in either small periodic amounts or a lump sum payment. Depending on your financial stability and goals, you can choose the one that aligns with your needs perfectly.

Liquidity -

Mutual funds offer significantly higher liquidity as compared to real estate investments. Selling real estate properties is a time-consuming and cumbersome process that also involves considerable paperwork. Mutual funds, on the other hand, allow you to liquidate your funds and sell them through an online market whenever you face a cash-crunch. Liquidity is one of the main reasons most investors opt for mutual funds.

Tax implications -

Both real estate and mutual funds offer several tax benefits and choosing between both based on tax implications involves consideration of a variety of diverse factors. While ELSS funds provide tax benefits up to a maximum of Rs.150000 under Section 80C of the Income Tax Act, real estate investments offer advantages through indexation. Indexation helps in lowering of taxes by considering the impact on inflation on the value of your property. Also, section 24 of the Act allows you to claim exemptions on the interest you pay on home loans.

Ease of investing -

Real estate investments involve a lot of paperwork, procedures and ancillary costs like stamp duty, registration charge, etc. That can make the entire investment procedure quite tedious and time-consuming. On the other hand, investing in mutual funds requires much less effort. You can invest online with a digital platform like North Loop. The process is paperless, effortless and also beneficial in several ways. With investment options being a few clicks away, mutual funds get chosen by most investors who want to invest in India from overseasand diversify their portfolio.

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This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended be advice. You must obtain professional advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax, investment or other professional advice from North Loop or its affiliates. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date. All opinions expressed do not reflect the views of North Loop nor are endorsed by North Loop.