Listen to the article
Fractional ownership vs Sip
Investing is an essential part of financial planning, but with so many strategies available, it can be challenging to decide which one fits your goals and risk tolerance.
Fractional Ownership and SIP are two popular investment approaches that offer unique benefits for investors. Fractional ownership provides investors with tangible ownership rights and a share of a high-value asset, while SIP focuses on disciplined investing, wealth creation, and rupee cost averaging.
By understanding the concepts, benefits, and considerations of each, you can make an informed decision on which strategy aligns with your financial objectives.
What is Fractional Ownership?
The idea behind fractional ownership is to split up a property’s ownership into more manageable, smaller pieces, known as fractional shares. To receive a proportionate share of the property’s value and potential income, each investor buys a certain fraction or percentage of the asset.
Because it enables people to invest in high-value properties with smaller capital requirements, this idea is extremely relevant to real estate investing. Investors who would not otherwise be able to afford it can now buy a portion of a property thanks to fractional ownership real estate investing.
This investment model is quickly gaining popularity and democratising investment opportunities due to its potential for high returns, ease of tracking, and benefits related to diversification.
Benefits of Fractional ownership
Fractional ownership presents an attractive investment opportunity by granting individuals access to premium properties, enabling diversification, and offering potentially lucrative returns with lower capital requirements. Let’s delve deeper into the benefits:
Access to Premium Properties: Fractional ownership allows individuals to invest in high-value properties that may have previously been out of reach financially. By owning a fraction of luxury residences, vacation homes, or commercial properties in prime locations, investors can enjoy the prestige and benefits associated with these esteemed real estate assets.
Reduced Capital Requirements: By purchasing a fraction or share of a property, fractional ownership significantly reduces the capital needed for real estate investment compared to buying the entire property. This lower barrier to entry makes real estate investment more accessible to a wider range of investors.
Diversification and Risk Mitigation: Fractional ownership enables investors to diversify their real estate portfolio by holding fractional shares in multiple properties. This diversification helps spread investment risk across various properties, locations, and market segments, reducing exposure to a single property or market and potentially enhancing portfolio performance.
Professional Property Management: Many fractional ownership arrangements include professional property management services, handling tasks such as property maintenance, tenant management, and marketing. This ensures that the property is well-maintained and optimized for rental income or resale value, providing investors with the expertise of experienced property managers.
Flexibility and Potential Liquidity: Fractional ownership offers investors flexibility and potential liquidity. They have the option to sell their fractional shares to exit the investment, offering an opportunity for liquidity. This flexibility allows investors to adapt their investment strategy, adjust their portfolio, or capitalize on changing market conditions effectively.
What is SIP (Systematic Investment Plan)?
A SIP, on the other hand, is an investment strategy commonly used in mutual funds or other investment schemes. In a SIP, investors regularly invest a fixed amount of money at predetermined intervals, usually on a monthly basis.
The invested amount is utilized to purchase units of a mutual fund at the prevailing Net Asset Value (NAV).
Benefits of SIP for investors
Here are the advantages of investing in SIP:
Simplicity of choice: With SIP, you have the flexibility to start investing small amounts, as low as Rs 500 per month, and watch your investments grow. SIP is not only simple and convenient to track, but it also encourages regular savings.
Rupee Cost Averaging: SIP employs a unique feature called Rupee Cost Averaging, where you buy more units when the market is low and fewer units when the market is high. This strategy helps reduce the average cost of your investments and potentially leads to higher gains over time.
Flexibility: SIP offers tremendous flexibility. Unlike long-term commitments such as Public Provident Fund or Unit Linked Insurance Plans, SIP investments are open-ended and can be withdrawn as per your choice, without any fixed tenor. You can withdraw the full or partial amount from your investment without incurring losses. Additionally, the amount of investment can be adjusted, either increased or decreased, depending on your financial circumstances. However, it is recommended to have a long investment horizon for wealth creation.
Higher returns: Compared to traditional fixed deposits or recurring deposits, SIP has the potential to provide higher returns. By investing in SIP, you can aim to beat the inflated costs and earn better returns.
Power of compounding: SIP operates on the principle of compounding interest, whereby a small amount invested over a long period yields better returns than a one-time investment. By consistently investing in SIP, you can take advantage of the power of compounding and potentially grow your wealth.
Acts as an emergency fund: Since SIP investments are open-ended without any fixed tenor, you have the flexibility to withdraw your SIP investment in case of emergencies, essentially serving as a contingent fund.
Difference between Fractional ownership Vs Sip
| Factors | Fractional Ownership | SIP (Systematic Investment Plan) |
| Principle | Owning a fraction of a high-value property | Investing a fixed amount regularly |
| Investment Amount | Requires a substantial initial investment | Can start with small amounts |
| Diversification | Can diversify by owning fractional shares | Can diversify by investing in various funds |
| Liquidity | Typically less liquid compared to market-traded assets | Can be liquidated easily |
| Returns | Potential for attractive returns | Potential for long-term growth |
| Risk and Reward | Split among fractional owners | Spread across various market investments |
| Flexibility | Allows flexibility in adjusting investments | Offers flexibility in investment amount |
| Ownership | Partial ownership of a property | No ownership of physical asset |
| Management | Professional property management services | Managed by fund managers |
| Market Exposure | Exposure to real estate market | Exposure to stock market |
| Investment Tenure | Typically longer-term investment | Can be short-term or long-term |
| Goal | Acquiring high-value real estate assets | Building wealth through disciplined investing |
Fractional ownership or Sip: Which is Right for You?
When making an investment decision, it is essential to consider several factors such as investment goals, financial situation, and personal circumstances. By doing so, you can identify the investment strategy that is suitable for your unique situation.
If your main investment goal is to acquire high-value real estate assets but cannot commit a large up-front amount, fractional ownership may be the ideal strategy for you. Fractional ownership allows you to invest in a property by purchasing a fraction of it, which can be as little as 1%.
This allows you to gain exposure to high-value real estate without taking on the full cost yourself. Additionally, fractional ownership provides diversification benefits by allowing you to own fractions of several high-value properties, which can provide stability and balance in your investment portfolio.
On the other hand, if you are interested in building long-term wealth through disciplined investing in a diversified portfolio, SIP may be the right fit for you.
SIP allows you to invest a fixed amount regularly at fixed intervals in a mutual fund or market-related securities. This allows you to take advantage of the power of compounding, where your investment grows over time, generating more returns.
Additionally, SIP provides diversification as you invest in a basket of securities, reducing the risk of investing in a single asset.
Lastly, personal circumstances, such as risk tolerance, play a crucial role in deciding which investment strategy to choose. If you have a higher-risk tolerance, you may be more comfortable with SIP, as it invests in market-related securities that are inherently riskier than real estate.
On the other hand, if you have a lower risk tolerance, fractional ownership may be more suitable as it provides access to high-value real estate, which is generally perceived as a lower-risk investment.
Bottom Line
When deciding between fractional ownership and SIP, evaluating your investment goals, financial situation, and personal circumstances is essential. Doing so will help you determine which strategy is the right fit for your unique situation. You can also seek the help of a financial advisor who can guide you through the decision-making process and help you make well-informed investment decisions.
Fractional ownership provides asset ownership and potential returns through appreciation and rental income. SIP enables disciplined investing, rupee cost averaging, and long-term wealth creation. By understanding the differences, benefits, and considerations of each strategy, investors can choose the approach that aligns with their financial goals and risk tolerance.
For investing in fractional ownership properties, Assetmonk is the best place for you. Assetmonk has been leading the line in the emerging alternative real estate investment space, and seeks to provide investors with unique opportunities for fractional ownership of prime commercial properties with a high Internal Rate of Return (IRR) and flexible liquidity options.
For long-term retail investors looking to expand their exposure to the CRE market and diversify their portfolios, Assetmonk’s fractional ownership options offer a high potential earning yield of 14 to 21% annually
FAQs
Q1. What is the difference between fractional ownership and SIP?
A. Fractional ownership involves owning a fraction of a high-value asset, such as real estate, while SIP (Systematic Investment Plan) is an investment strategy that involves regular investing in mutual funds or market-related securities.
Q2. How does fractional ownership help investors acquire high-value assets?
A. Fractional ownership allows investors to purchase a fraction of a high-value asset, such as real estate, without having to commit a substantial amount upfront. This provides an opportunity to gain exposure to high-value assets that might have been financially inaccessible otherwise.
