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    Structured Debt Backed by Real Estate vs. Debt Mutual Funds: Exploring Risk and Yield Potential

    • 5 min read
    • Last Modified Date: March 21, 2024
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    Investing in the financial market can be an intricate dance, with a multitude of options available to those seeking to grow their wealth. Two such avenues that have garnered significant attention are structured debt backed by real estate and debt mutual funds. Both these investment vehicles offer distinct advantages and considerations, making them compelling choices for investors looking to diversify their portfolios or generate stable returns.

    Throughout this article, we will compare and contrast the features of structured debt backed by real estate and debt mutual funds, discussing factors such as risk profiles, return potential, liquidity, diversification, and management styles.

    Let’s go ahead!

    What Are Real Estate Backed Structured Debts?

    Real estate backed structured debts are financial instruments that derive their value and security from underlying real estate assets. These structured debts involve pooling funds from multiple investors, which are then used to provide loans or financing to real estate projects or borrowers. The loans are typically secured by real estate assets, such as properties, buildings, or land.

    Real estate backed structured debts continue to be popular alternative investments, offering potential benefits to both borrowers and investors. The real estate market has shown resilience and growth in recent years, with increasing demand for residential, commercial, and industrial properties. This trend has contributed to a steady supply of investment opportunities in the form of real estate backed structured debts.

    Investors are drawn to these instruments due to their potential for generating regular income through interest payments and the added security of collateralized assets. Furthermore, the diversification offered by investing in a pool of real estate assets can help mitigate risk and provide stability to investment portfolios.

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    What are Debt Mutual Funds?

    Debt mutual funds are investment vehicles that pool money from multiple investors to invest in a diversified portfolio of debt securities. These funds primarily invest in fixed-income instruments such as government bonds, corporate bonds, treasury bills, money market instruments, and other debt instruments.

    As of the latest data, debt mutual funds continue to be a popular choice for investors seeking stable income and relatively lower risk compared to equity investments. These funds are professionally managed by experienced fund managers who analyse credit quality, interest rate trends, and market conditions to make informed investment decisions.

    Debt mutual funds offer several advantages to investors. Firstly, they provide liquidity, allowing investors to buy or sell fund units on any business day. This feature makes them an attractive option for those seeking flexibility and easy access to their invested capital. Secondly, debt mutual funds offer diversification, as they invest in a range of debt securities across different issuers and sectors, thereby reducing the risk associated with investing in a single security.

    Additionally, debt mutual funds cater to investors with varying risk preferences and investment horizons. They come in different categories, such as liquid funds, short-term funds, income funds, and gilt funds, each with its own risk-return profile.

    Structured Debt Backed by Real Estate vs. Debt Mutual Funds

    FactorsStructured Debt Backed by Real EstateDebt Mutual Funds
    Investment TypeReal estate-backed loansDiversified debt securities
    Underlying AssetsReal estate properties, buildings, landGovernment bonds, corporate bonds, etc.
    Return PotentialPotential for attractive returnsRelatively stable income
    Risk ProfileModerate to highLow to moderate
    Collateralized AssetsYesNo
    LiquidityGenerally liquidLess liquid
    DiversificationBroad diversification across issuers and sectorsLimited diversification
    Professional ManagementYesYes
    Investment HorizonShort to medium termShort to medium term
    Yield %Upto 12-18% 10-11% 

    Real Estate Backed Investments Are Superior Investments

    1. Steady Growth: 

    The real estate sector in India has witnessed steady growth in recent years, with increasing demand for residential, commercial, and industrial properties. The government’s initiatives to boost affordable housing and infrastructure development have further fueled the growth of the sector. This growth trajectory presents an opportunity for investors to benefit from capital appreciation and rental income.

    1. Tangible Asset: 

    Real estate backed investments offer the advantage of being backed by tangible assets. Investors have a direct stake in physical properties, which can provide a sense of security and stability. Even during economic downturns, real estate tends to hold value better than other asset classes.

    1. Income Generation: 

    Real estate investments provide the potential for regular income through rental yields. With the growing demand for rental properties, investors can benefit from steady cash flows, especially in prime locations and cities with high rental demand.

    1. Portfolio Diversification: 

    Investing in real estate backed assets allows for portfolio diversification, reducing the overall risk exposure. Real estate has a low correlation with other traditional asset classes, such as stocks and bonds, which can provide a hedge against market volatility.

    1. Favourable Regulations: 

    The regulatory environment in the Indian real estate sector has seen significant improvements, with the introduction of measures like the Real Estate (Regulation and Development) Act (RERA). These regulations aim to protect the interests of investors and enhance transparency in the sector, making it a more favourable investment landscape.

    1. Potential Tax Benefits: 

    Real estate investments in India can offer tax benefits such as deductions on home loans, exemptions on rental income, and capital gains tax benefits on long-term investments, subject to applicable rules and regulations.

    To Summarise

    Structured debt backed by real estate and debt mutual funds offer distinct investment options. Structured debt backed by real estate provides the potential for attractive returns and collateralized security, while debt mutual funds offer less diversification and liquidity. Consideration of risk tolerance and investment goals is crucial when choosing between the two. Assetmonk’s structured debts, backed by high-quality real estate assets, present additional investment opportunities.

    Related Articles:

    Real Estate Vs Bonds: Where To Invest In 2022?

    Real Estate Vs Bank Schemes: Where Should You Invest In 2022?


    What is structured debt backed by real estate? 

    Structured debt backed by real estate refers to a financial instrument where debt is secured by underlying real estate assets, providing potential returns and collateralized security.

    What are debt mutual funds? 

    Debt mutual funds pool money from multiple investors to invest in a diversified portfolio of debt securities, offering stability and regular income.

    Which is riskier, structured debt backed by real estate or debt mutual funds? 

    Structured debt backed by real estate typically carries moderate to high risk, while debt mutual funds generally have a lower to moderate risk profile.

    Are real estate backed investments more liquid than debt mutual funds? 

    Real estate backed investments are generally more liquid, whereas debt mutual funds offer less liquidity. 

    How can I choose between structured debt backed by real estate and debt mutual funds? 

    Consider your risk tolerance, investment goals, and time horizon. Conduct thorough research, consult with financial advisors, and analyse the features and benefits of each investment option to make an informed decision.

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