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    Structured Debt Backed by Real Estate vs Public Provident Fund Returns for Retirement Planning

    • 5 min read
    • Last Modified Date: November 15, 2023
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    Retirement planning is a critical aspect of financial management, and investors often explore various avenues to secure their post-retirement income. Two popular options for retirement planning are structured debt backed by real estate and the Public Provident Fund (PPF). In this comparative blog, we will delve into the features, risks, and returns of these investment options to help investors make informed decisions aligned with their retirement goals. By examining the benefits and considerations of structured debt backed by real estate and the PPF, individuals can navigate their retirement planning with confidence.

    Structured Debt Backed by Real Estate Explained

    Structured debt backed by real estate refers to fixed-income investment products that utilize real estate assets, such as mortgages or real estate-backed securities, as collateral. These investment instruments provide investors with exposure to the real estate market without the need to directly own or manage properties.

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    Benefits of Structured Debt Backed by Real Estate

    1. Potential for Attractive Returns

    Structured debt backed by real estate offers the potential for attractive returns through interest payments or capital appreciation.

    1. Diversification

    Real estate-backed investments can add diversification to an investment portfolio, as they typically have a low correlation with traditional asset classes like stocks and bonds.

    1. Professional Management

    Investors can benefit from the expertise of asset managers who carefully select and manage real estate-backed investments.

    Risks of Structured Debt Backed by Real Estate

    1. Market Volatility

    Real estate markets can experience fluctuations, which may impact the value of the underlying assets.

    1. Credit Risk

    There is a possibility of default by borrowers or issuers of the underlying real estate assets, which can affect investment returns.

    1. Liquidity

    Structured debt backed by real estate can be less liquid compared to some other investment options, as it may take time to sell or exit these investments.

    Understanding Public Provident Fund 

    The Public Provident Fund is a government-backed savings scheme in India that offers a fixed interest rate and tax benefits. It is a long-term investment option primarily designed for retirement planning.

    Benefits of Public Provident Fund

    1. Safety and Security

    The PPF is backed by the government, making it a safe investment option.

    1. Tax Benefits

    Contributions made to the PPF are eligible for tax deductions, and the interest earned is tax-free.

    1. Long-Term Retirement Planning

    The PPF has a lock-in period of 15 years, which encourages disciplined long-term savings.

    Risks of Public Provident Fund

    1. Relatively Lower Returns

    The returns on PPF are generally lower compared to other investment options such as equity or real estate.

    1. Limited Liquidity

    While the PPF offers partial withdrawals and loans after a certain period, it is less liquid compared to some other investment options.

    Structured Debt Backed by Real Estate vs Public Provident Fund Returns: Comparative Analysis

    Returns and Growth Potential

    Structured Debt Backed by Real Estate

    Real estate-backed investments have the potential for attractive returns through interest payments and capital appreciation. However, returns can vary based on market conditions and the performance of the underlying assets. They mostly offer a yield of 12 percent to 18 percent.

    Public Provident Fund

    The PPF offers stable and fixed returns, although relatively lower compared to real estate-backed investments. The returns range from 5 percent to 10 percent. The interest rates are revised periodically by the government.

    Risk and Safety

    Structured Debt Backed by Real Estate

    These investments carry risks associated with market volatility, credit risk, and liquidity. Investors need to carefully assess the risks and consider the credibility of the underlying assets.

    Public Provident Fund

    The PPF is considered a safe investment backed by the government. However, it is still essential to monitor the interest rate changes and stay informed about any regulatory updates.

    Liquidity and Flexibility

    Structured Debt Backed by Real Estate

    Real estate-backed investments are traded in the secondary market, providing investors with a certain level of liquidity.

    Public Provident Fund

    The PPF has a lock-in period of 15 years, and partial withdrawals or loans are allowed after a specific period. However, it may not provide the same level of flexibility as some other investment options.

    Comparison Table

    ReturnsYieldSecurityVolatility RiskDiversificationLiquidity
    Real estate structured debt12-20%12-20%Secured by Real EstateLow-NoneUnlimitedCertain liquidity via a secondary market
    Public Provident Fund7.1%VariesSovereign GuaranteeLowLimitedNone

    Bottom Line

    Both structured debts backed by real estate and the Public Provident Fund offer distinct advantages and considerations for retirement planning. Structured debt backed by real estate provides the potential for attractive returns and portfolio diversification, albeit with associated risks and lower liquidity. On the other hand, the Public Provident Fund offers safety, tax benefits, and a disciplined savings approach, with relatively lower but stable returns. Ultimately, the choice between these two options depends on factors such as risk tolerance, investment horizon, liquidity requirements, and individual financial goals. It is advisable to seek professional advice and carefully evaluate the features, risks, and returns of each option to develop a retirement plan tailored to one’s specific needs and aspirations.

    Assetmonk,  a prominent alternative investment platform based in India, presents investors with a unique avenue to engage in fixed-income investments through real estate structured debts. Among their notable investment offerings, the Signature Series A stands out as a remarkable fixed-income product with a primary focus on real estate structured debt. At present, this product presents investors with an enticing opportunity to earn attractive returns, boasting a guaranteed Internal Rate of Return (IRR) of 17.1 percent. Additionally, investors have the potential to capitalize on tax savings of up to Rs. 50,000. What makes this opportunity even more appealing is its accessibility, as individuals can commence investing in this product with a minimum amount of just Rs. 10 lacs. This low entry threshold ensures that a wide range of investors can participate and benefit from this exceptional investment opportunity.

    Related Articles

    1. A Comprehensive Guide On Fixed Income Investments.
    2. PPF Calculator – Public Provident Fund Calculator Online.
    3. PPF Interest Rates for FY 2023.

    FAQs

    Q1. Which is better real estate or mutual funds?

    A. Investing in mutual funds for the long term typically yields a minimum return of 12 percent. On the other hand, long-term investments in real estate offer an approximate return of 18 percent. Additionally, real estate investments provide the advantage of rental income.

    Q2. What is the difference between debt funds and equity funds in real estate?

    A. Equity real estate investing generates returns through rental income collected from tenants or capital gains realized from the sale of the property. On the other hand, debt real estate investing entails providing loans or investing in mortgages (or mortgage-backed securities) to earn returns.

    Q3. Can debt mutual funds go negative?

    A. Long-term debt funds can experience negative returns during periods of rising interest rates.

    Q4. How are debt funds taxed in India?

    A. Currently, investors in debt funds are subject to income tax on capital gains based on their income tax bracket for the initial three years of holding. Subsequently, they are taxed at a rate of 20 percent with the benefit of indexation or 10 percent without indexation.

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