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Investing in Land vs Investing in Mutual Funds
- As a savvy investor, two avenues of investment, real estate, and mutual funds are always on the back of your mind. After all, these two investment options are some of the only ones with the potential for assured returns.
- According to Knight Frank India, the Indian real estate market received USD 3.0 billion in private equity (PE) investments from 23 deals in 2023 (January 01 – December 12, 2023), compared to USD 5.3 billion in 2022.
- Compare this to mutual funds, where total inflows in mutual fund schemes reached heights of 1,61,573 crore rupees in 2023, as per Association of Mutual Funds in India (AMFI) data.
- Both of these, real estate, whether residential or commercial, and mutual fund investments come with their own set of advantages and risks.
- If you’re unsure about whether you should invest your hard earned money in real estate or mutual funds, we’ve got you covered. In this guide we’ll go through the nuances of real estate investing vs investing in mutual funds, and cover a number of key points about both.
Real Estate As An Investment
- Investing in land is a real investment. That means you’re investing in a real, tangible asset and securing ownership of a physical piece of the world. Owning land brings with it a sense of permanence and historically, real estate has proven to be a solid long-term investment option providing stable returns.
- According to a joint report by the National Real Estate Development Council (NAREDCO) and Knight Frank, the Indian real estate industry is expected to generate USD 5.8 trillion by 2047. According to a joint report by the National Real Estate Development Council (NAREDCO) and Knight Frank, the Indian real estate industry is expected to generate USD 5.8 trillion by 2047.
- Real estate, unlike stocks or mutual funds, can withstand economic downturns & market volatility, and that makes it a very attractive option for risk-averse invest-and-forget investors.
Potential For Appreciation
- One of the main advantages of investing in real estate is that land always has potential for capital appreciation, based on the economic activity happening around the property location.
- Especially in India, as the population grows and more millennials flock to metropolitan and tier-2 cities for career opportunities, the demand for high value commercial real estate increases, and also results in an increase in its value.
- Investors in land always benefit from capital appreciation especially if the location undergoes corporate urbanisation or infrastructure improvements.
Potential for Passive Income
- Real estate, especially commercial properties generate high rental yields and income. Some commercial properties in prime locations even provide expected Internal Rate of Return (IRR) greater than 15%.
- While land doesn’t generate regular income like rental properties, there are avenues for passive income. Agricultural land, for instance, can be leased to farmers, providing a steady source of income for the landowner. However, it’s essential to note that generating income from land requires active management.
Investing in Mutual Funds: Collective Investment
- A number of investors come together & pool their money into a diversified fund of stocks, bonds, and other securities. That is a mutual fund. By diversifying in this manner – the mutual fund manager ensures that the success or failure of any single investment doesn’t significantly impact overall fund performance.
- The better and more professional the mutual fund manager is, the better strategic decisions they’ll make. They’ll also navigate the investments based on market trends with the aim of maximising returns for investors.
Liquidity & Accessibility in Mutual Funds
Mutual funds do have a big selling point: liquidity. At the close of each trading day, 4 PM to be exact, investors have the option to purchase or sell their mutual fund shares. The value of the fund shares is determined by current net asset value (NAV). The attractive pull of mutual funds lies in their ease: they provide quick access & liquidity options for individuals who require their funds at short notice.
Risks Associated with Market Volatility
The main advantage of diversifying your portfolio is, you guessed it: Minimisation of risk. This is where mutual funds have a small chink in their armour: Despite their broad portfolio spreads, mutual funds are susceptible to market volatility due to the presence of the underlying financial instruments in the funds.
The performance of the funds can suffer from economic downturns, fluctuations in investment values, and so on.
This is a reminder that even if you prioritise diversification, risks will always be there. So if you aim to invest in mutual funds, having a clear understanding of your risk tolerance and financial goals is paramount.
Land Investment vs Mutual Funds: Key Differences
| Aspect | Land Investment | Mutual Funds Investment |
| Nature of Asset | Tangible, physical property | Intangible securities portfolio |
| Appreciation Potential | Potential for capital appreciation, especially in developing areas | Linked to market conditions and securities performance |
| Income Generation | Passive income through leasing or agriculture | Dividends and interest income from portfolio |
| Liquidity | Limited liquidity, may take time to sell | High liquidity, can be bought/sold daily |
| Market Volatility | Generally stable, less subject to market fluctuations | Subject to market-driven fluctuations |
| Risk Profile | Lower short-term risk, suitable for long-term investors | Market-driven risk, potential for short-term volatility |
| Ideal Investment Horizon | Long-term orientation | Suitable for both short-term and long-term investors |
| Entry Ticket | Typically requires substantial capital | Varies, often lower minimum investment compared to land |
| Diversification | Provides stability and potential long-term gains | Offers diversification through a variety of securities |
| Professional Management | Requires active management for income generation | Professionally managed by fund managers |
| Accessibility | May be restrictive due to high entry barriers | More accessible with lower entry requirements |
| Innovation in Investment | Fractional ownership models emerging, providing accessibility to high-value real estate through platforms like Assetmonk | Traditional investment vehicles, evolving with technology in terms of online accessibility |
Bottom Line: The Best of Both Worlds
Investors will always be on the never-ending search for the ideal investment. While we’ll be sure to spill the sauce when we find it, the choice between investing in real estate opportunities vs investing in mutual funds ultimately boils down to your individual preferences as an investor:
Risk tolerance, investment goals, short term vs long term investment, expectations of returns, all of these factors play a role.
Real estate offers stability and potential for appreciation, which is ideal for patient, long-term investors. Mutual funds provide professional management and liquidity, catering to a broader audience seeking diverse and accessible investment options.
For investors looking for flexible opportunities in commercial real estate, Assetmonk offers a unique alternative investment opportunity: Fractional ownership of high end commercial properties.
It marries the stability inherent in real estate – an industry known for its resilience and long-term growth potential – with the accessibility commonly associated with mutual funds.
Investors can participate in high value commercial real estate investments by pooling their money and purchasing ownership stakes in them. Assetmonk’s minimum entry ticket for our commercial properties is Rs 25 lakhs.
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