Real Estate Vs Mutual Funds, Which one is Right for you?

This is one of the most famous, most debatable, and most interesting debates right now. Not only now, there is a high probability that it will remain the same forever. As an investor, you have the option of investing either in property, equities, or both (if you are capable of doing that). But if you to consider a sole option, what would be your preference? Are you confused? Let us look at the reasons for choosing the right investment option for you.

Real Estate

Many of the people admit that real estate is the gold mine for the investors. Well, they conclude this on the basis of happenings around them. For example, if they purchase a flat in Delhi for Rs 50 lakhs in 2005 and now, the market value of the flat is 1.2 crores; they assume that the real estate has great potential for investment purposes.

But if you dive deeper into the analysis, this is not true up to an extent. It is possible that they have purchased the property on a loan. The loan will be repaid in EMI’s for a period of 10-20 years (this is an assumption). You are paying the interest on the loan. The interest is compounded annually. Moreover, the property will demand maintenance as well. Every year, there will be a fixed amount that will be incurred on maintenance.

This means, after you bought the property, you are still incurring expenses. So, if you think that your property generated a profit of 70 lakhs in 12 years, you are wrong. After deducting the expenses, the profit cost comes considerably down.

But yes, if you didn’t take the loan for the property, then the profit margin will be definitely high. Or if the agricultural land value shot up significantly due to development, then it is a different case. Here, the property generated an impressive return on investment.

Mutual Funds

Now, coming to mutual funds, let us look at the benefits associated with this kind of investment. If you are a salaried individual, what would you like to do? Take a loan to purchase a property and afterward, pay hefty EMI’s with interest or invest in a systematic investment plan (SIP). The decision seems obvious. But for those who don’t know about mutual funds, let us discuss in detail.

If the GDP of the country is 8%, you can expect real estate to grow at 12-14% and mutual funds to grow at 15-20%. However, these figures are true for the long term investment.

So, if you invest in a SIP by paying a particular EMI each month, you will get a return on investment after the maturity period. The interest rate is calculated at the compound interest. The calculations reveal that mutual funds investments generate more profit than the real estate investment. In mutual funds, you don’t need to incur any expenses. Choose your portfolio wit care, as best mutual fund portfolios give higher gains.

However, there is risk associated with the mutual funds. The return is based on the market behavior. But then, risks are everywhere. You cannot evade them. So if you compare real estate and mutual funds, the latter seems to be a more feasible option.