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REAL ESTATE VS MUTUAL FUNDS: WHERE SHOULD YOU INVEST?

The demand for the real estate sector is ever growing. With property prices skyrocketing every now and then, people get attracted to real estate and prefer to invest in these investment options. However, is it the ideal choice for you? For emerging markets like India, mutual funds might be a more viable option for investors. This article aims to serve as a mutual fund investment guide in choosing the right investment option for your portfolio. Read on to understand why mutual funds are a better investment option than real estate.

What are mutual funds?

Mutual funds are professionally managed investment vehicles that allow investors to invest in different asset classes such as stocks, bonds, money market instruments, etc. Different types of mutual funds are available to cater to the varying needs of investors. Mutual fund investments are an ideal option for investors new to the investment world.

Real estate v/s Mutual funds

The following table explains the differences between these two diverse investment options:

Real estate Mutual funds
Expected returns Returns on real estate investments are highly dependent on the location of the property and may not always beat inflation Mutual funds have the potential to deliver inflation-beating returns provided a good investment portfolio is chosen
Diversification Diversification is not usually possible with real estate investments Mutual fund investments can help an investor to diversify their investment portfolio by investing in different types of mutual funds
Taxation Returns on real estate are taxed without the benefit of indexation Mutual funds are taxed based on their holding period, and asset class.
Tax deduction No tax deduction ELSS mutual funds offer a tax deduction of up to Rs 1.5 lac under Section 80C of the IT Act, 1961
Liquidity Illiquid in nature The liquidity depends on the type of mutual funds an investor invests in
Hidden charges Real estate investments might entail hidden charges such as stamp duty, registry, maintenance, etc. Mutual funds exercise complete transparency with investors
Mode of investment Real estate does not offer the option of systematic investments An investor can invest in mutual funds via lumpsum or SIP mode

Not only are the returns significantly high in mutual funds as opposed to real estate, investing in mutual funds is quite convenient. Real estate investments entail heavy paperwork and constant oversight. It might even take time to get possession. On the other hand, an investor can easily invest in mutual funds online from the comfort of their homes. They can purchase and sell stocks at the click of a button. What’s more, unlike real estate, mutual fund investments allow an investor to switch from one fund to another.

Whether you decide to invest in mutual funds or not must entirely depend on your investment horizon, financial objectives, and risk appetite. Don’t forget to consider aspects such as liquidity, convenience, transparency, safety, diversification, and wealth generation potential to decide the right investment option for your portfolio. Happy investing!

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