Real Estate vs Mutual Funds: Which Is The Right Investment For You In 2022?

Investment is one of the simplest methods to get a passive income if you have a basic grasp of how to invest and what works best for you. Investing in real estate or mutual funds is essentially a personal decision that is influenced by your present financial circumstances, investing goals, and approach.

Share on facebook
Share on twitter
Share on linkedin
Real Estate Vs Mutual Funds

Investment is one of the easiest ways of generating a passive income, provided you have the basic knowledge of investing and an understanding of what works best for you. Investing in real estate or mutual funds is primarily a personal choice that can depend on your current financial situation, goals, and investment strategy. But still, we can say that the number of people investing in mutual funds is generally higher than real estate, this could be so because mutual fund investment is comparatively more affordable than real estate. And so if you are planning to make a real estate investment, you might have to set aside a large sum of money for a long time before you can invest.

But that doesn’t mean that the number of people investing in real estate is any less, as for a very long time people have associated real estate property, generally land and houses, as a good investment towards the future, and people can also invest all of their lifelong savings into purchasing a piece of land or property.

Also Read: 8 Simple Techniques To Build Your Passive Income Portfolio

Why Should You Invest in Real Estate?

Land as an asset has always had unique importance in the history of India. Investing in such an important asset for the sake of personal use may require much of the market study. Since investments are concerned, here are the points to be considered for real estate:

Ever since the introduction of the Real Estate Regulation Act (RERA) in 2016, transparency and hold-on misconduct by the builders have been observed, opening a protected opportunity for the investors. India Brand Equity Foundation foresees investments in the housing sector of the country to be as extensive as the US $1.3 trillion by 2025. This fact is backed up by a robust increase in demands of commercial and residential realty in India with urbanization giving a new shape to the country. As a result of digitalization and transparency rising in the Indian economy, the private sectors are witnessing a surge in real estate investments.

Also Read: Real Estate Investing – How Much Will The Sector Grow Till 2030?

In the aftermath of demonetization, the real estate sector has witnessed significant demand in affordable housing. It opens the gates of investments in properties to rent out spaces in the later stages. The booming money lender companies allow the home buyers to buy properties in installments with low EMIs and other freebie alternatives that can be availed from the current market. More properties and homes are an added advantage to the investors’ wealth report as the demands have shown a significant rise in the graphs of the realty sector.

Also Read: How Stable Is The Indian Economy For Real Estate Investments?

What exactly are Mutual Funds?

Mutual funds investment facilitates pooling money from investors and then invests the larger amount in several investment assets such as equity & stock market, foreign securities, gold or other potential asset windows. Mutual funds are beneficial for investors who lack a larger monetary capacity for making investments or enough time for market research for other investment options.

In Mutual funds, the funds acquired from investors are managed by expert fund managers, assuring, safety under the capital market regulation of SEBI (Securities and Exchange Board of India) and AMFI (Association of Mutual Funds in India). Mutual funds are a dynamic set of opportunities for investors as it allows investment in all sizes with the lowest and highest possible investments. It also helps them become stakeholders of the investments in diverse portfolios.

Mutual funds give their investors the liberty to be actively or passively invest and manage their funds. It benefits its investors from the upper trends of capital markets. It is beneficial but the right choice of funds is a challenge. Although the market risks pertain to all the assets in the investments, the volatility in equity markets is higher than that of inflation risks. It is observed to be an aggressive but gradual process. Therefore, fluctuation in the stock market due to its volatile nature can land the stakeholders at risk of losing their value in no time.

Long-term and short-term performances

Some assets encourage long-term scenarios with bigger plans for investments. The others can achieve quick bucks in shorter spans but their risks and size of profitability may be a question. The real estate sector offers long-term assurance and higher returns in terms of investments. With the help of Non-Banking Finance Companies funding the developers, the supply-demand mismatch in the real estate sector has recovered eventually.

The study on trends of the residential real estate sector of India suggests that a realistic, mature, and steady graph has replaced the haphazard growth of real estate market growth in the country. With a span of 5 – 7 years the investors might be able to provide 10% of annual returns while perennial rental incomes from the properties will contribute much more in the long run.

Mutual funds offer opportunities for investors to invest in the long term as well as short-term investment plans. The returns from mutual funds depend on their holding periods. At times, capital gains may be obtained in only a few months. Conversely, funds invested and held for longer terms might have degraded their value owing to the volatility of the asset.

Real Estate vs Mutual Funds: A Comparative Assessment

Real Estate

Mutual Funds

Economic risks involving fluctuations in interest rates, inflation rate, etc. (short term goals)

Debt mutual funds experience high risks due to interest rate fluctuations in the market

The rental sector may seek asset-level risk due to the increasing sharing economy concept in the market.

High exposure to equity in the volatile market holds a backfiring scheme and can incur huge losses in the investor’s portfolio.

Idiosyncratic Risk relative to a particular project is subjective to real estate. The delayed or rejected proposals from governmental bodies are a pit in the investment plans in short-term goals

Return on equity is solely dependent on the volatility of the market. Low-performance risk is subjected to high risks in both short term and long term investments

Liquidity risk of stagnant dead investment is a crucial risk but for the short term only. In the longer run, the profitability is assured and liquidation is healthily obtained

Liquidity risks in the closed-end investment for the long term plans is an inevitable risk that comes along

Credit risk is meager in this sector as reselling of the property at minimal rates would also be profitable

Credit risk in terms of Debt mutual funds is an alarming factor that prevents investors to root for mutual funds

Replacement risk is minimal for newer properties, whereas significant for older ones

Replacement risk related to switching cost in the policies is moderate

The structural financial risk applies only when the background of the investor is not stable

The structural financial risk is heavily imposed where investors are unable to pay their share in the investment plan and heavy penalties are levied on them

Leverage risk rises only when investments are made with huge debts and return on assets is questionable

Leverage risk roots for potential profits only when the investment is secured. Otherwise, it’s a risky turmoil for the investor

HOW TO DECIDE WHAT’S BETTER FOR YOU?

Is real estate a good investment? Or are mutual funds better? Here are some quick points that you can address to make an informed decision.

  • Your capital

The minimum capital you will need to invest in real estate, especially land and property can be in lakhs and even crores for that matter. But if you go for mutual funds you can even start your investment journey with Rs. 1000 per month.

So real estate can be a very cost-efficient investment in comparison to real estate.

  • Market Liquidity

The liquidity of the asset you are investing in is also very important. Real estate properties are very easy to sell as they are always in demand, but sometimes due to the location of the property or the market situation, the turnaround time for the selling of property can vary from what you had expected. At the same time, high-risk mutual funds which are known for giving the best returns can also take very sharp dips and result in losses.

  • Your personal goals

Finally, your personal goal and investment objectives also matter. Having a clear vision of what you want will prove helpful, as then you can decide where to invest and for how long.

In real estate, the prices of property may vary from location to location.

Finally, when it comes to investment, both mutual funds and real estate belong to the growth asset categories, and both involve risk. Also, different people have different investment styles and strategies they feel most comfortable with. This means it is better to weigh out the advantages and disadvantages and then make a choice and don’t run from something you’ve never done before.

Exit options

Redemption of open-ended mutual funds is easy but solely dependent on the volatility of the stock market whereas the dissolution of close-ended mutual funds before its maturity comes with huge deductions. In real estate, without investing a huge amount of money, based on the token fee and goodwill of an individual, one can buy and sell properties at current market rates and earn the difference amount in millions. Exit option in real estate is majorly controlled by the investor whereas in mutual funds, the investor is majorly dependent on the market rates.

Concluding the comparative study, it can be deduced that real estate comes with the added benefit of a physical asset that can be bought, used, and sold giving profitable outcomes economically, financially, mentally, and physically. Whereas, investments in mutual funds are a virtual bubble that can’t be used by an individual.

 Assetmonk provides a profitable platform to potential investors in the long haul. It provides a diversified plan to manage the liquidity of an individual by investing in real estate. Assetmonk assures return on investment with low-risk exposure and high profitable returns.

Real Estate Vs Mutual Funds FAQ's

Post the demonetization phase, the real estate sector has witnessed significant demand in affordable housing. It is opening the gates of investments in properties to rent out spaces at a later point of time in the future. The booming money lender companies are now allowing the home buyers to buy properties in installments with low EMIs and other freebie alternatives that can be availed from the current market. More properties and homes are an added advantage to the investors’ wealth report as the demands have shown a significant upheaval in the graphs of the realty sector. So, this holds a good enough reason for why to invest in real estate now.

Mutual funds investment facilitates pooling money from investors and then investing the collectively invested large amount into several investment assets such as equity, stock market, foreign securities, gold, or various other potential asset windows.

The ‘better’ here is not absolute but variable which means that it might vary depending upon various requirements and factors.
The real estate sector offers long-term benefits and higher returns in terms of investments. The study of the residential real estate sector of India suggests within a span of 5 – 7 years, the investors might be able to get 10% of their annual returns while perennial rental incomes from the properties will contribute much more in the long run.
Whereas, the mutual funds offer opportunities for investors to invest in the long term as well as short term investment plans. The returns from MF depend on their holding periods. At times, capital gains may be gotten in only a few months. Inversely, funds invested and held for longer terms in MF might degrade in their value owing to the volatility of the asset.

Risks involved in real estate investments:

  • Economic risks which include fluctuations in interest rates, inflation rate, etc
  • Illiquidity in a short term perspective.
  • Leverage risk only when investments are made using huge debts.

Risks involved in mutual funds:

  • Debt mutual funds face higher risks due to interest rate fluctuations in the market.
  • High exposure to equity in the volatile market holds a backfiring scheme and can cause huge losses to the investor’s portfolio.
  • Credit risk in terms of Debt mutual funds is an alarming factor that prevents investors from opting for mutual funds.

Exit option in real estate is majorly controlled by the investor whereas in mutual funds, the investor is maximally dependent on the market rates.

Real estate comes with an extra benefit of a physical asset that can be bought, used, and sold giving very profitable outcomes economically, financially, mentally, and physically. Whereas, investments in mutual funds is a virtual bubble that cannot be used by the investor.

Related Articles

istockphoto 155700839 612x612 1

Rental housing demand will increase in crucial micro markets

The real estate market has exploded in the post-pandemic era. The corporate market is increasing, increasing demand for commercial space and rental residences. According to industry statistics, in the second quarter of this year, Indian rental home searches climbed 84.4% year on year and 29.4% sequentially. Furthermore, total combined rental housing listings rose 3% quarter on quarter and 28.1% year on year throughout the 13 Indian cities covered. Do not miss The 18% GST on rent gets anticipated to harm the rental housing industry. But, what are the variables that will lead to the rental housing demand boom? Accessibility and cost-effectiveness: When it comes to renting a property, people primarily examine three factors: infrastructure, connection, and price. The property’s location, with ready infrastructure and decent connection, takes precedence over the size and price of the unit. Customers want a home in a prominent location that allows them to maintain a good work-life balance, with less commuting time, easier access to…

Read more
istockphoto 1393356971 612x612 1

REITs, New Age Instrument: Investing in Properties Without Actually Investing in One

Real estate investing always meant purchasing, owning, and managing an actual property. But, did you know that it can still be done without actually owning the property? Thanks to REITs, investors need only put their money into corporations that possess substantial portfolios of self-appreciating real estate assets in some of the world’s most desired locales. Welcome to the world of REITs where you can buy real estate without the inconvenience of owning the property altogether. Easy peasy lemon squeezy right? Real estate investment trusts are popular among investors who wish to buy real estate without the inconvenience of owning the property altogether. These investments, known as REITs, allow investors to deposit money into income-producing real estate. A REIT is best described as a simple way to own real estate without actually purchasing any property. Investors can acquire individual shares of a real estate investment trust, similar to stocks, which gives them little chunks of several properties. This protects them from…

Read more
istockphoto 1394977436 612x612 1

Commercial Real Estate Leases: Different Types and Which Is the Best?

Leasing commercial space is a significant financial commitment and requires commercial real estate leases. These leases can be intimidating, especially because they are a huge commitment that can be costly. However, they are not as difficult as many people believe. A commercial real estate lease, like most other legal transactions, should not be taken lightly. As a result, when renting commercial space for the first time, it is critical not only to thoroughly study the industry but also to have a good understanding of the many forms of commercial leases accessible in India. Also, read Commercial Real Estate Is Booming In 2022: Explore How You Can Also Profit Via This Alternative Investment. Here’s an explanation of the many forms of commercial real estate leases and what they imply for renters and landlords: Firstly, what are commercial real estate leases? Commercial leases, as opposed to residential leases, are an arrangement between a renter (company) and landlord that specifies the property only…

Read more
istockphoto 817688664 612x612 1

The Indian real estate market would be worth $1 billion by 2030: RBSA Advisors

According to RBSA Advisors, the real estate business gets expected to grow by 15% by 2030, reaching $1,000 billion. According to RBSA Advisors, the Indian real estate sector would grow at a 15% CAGR from $60 billion in 2010 to $1,000 billion by 2030, contributing 13% of the country’s GDP by 2025. The organized retail real estate industry get expected to rise by 28% to 82 million square feet by 2023. Per “The Outlook of the Real Estate Sector in India,” the Indian real estate sector is showing strong indications of recovery as the economy recovers from the pandemic. Also, read JLL reports Indian real estate garnered $943 million in investments worth in Q1 2022. Despite a little increase in prices and a slight increase in home loan interest rates, the real estate industry has thrived on good buyer enthusiasm. According to the poll, there is substantial demand for property in Delhi-NCR across all price levels. The entire increase in…

Read more
istockphoto 1394786542 612x612 1

Aspire to be A Top Commercial Real Estate Agent? Here are Some Critical Steps To Becoming One

Do you want to be a successful commercial real estate agent? The Indian real estate market is diversified but vibrant and competitive, particularly for commercial real estate agents. To build a successful niche, they must comprehend the shifting promotional circumstances of developers as well as customer preferences. Staying current and afloat in the market requires innovation and openness to new marketing concepts. Follow the steps below to be a top agent. Do you want to be a successful commercial real estate agent? If this is the case, the first question you must answer is whether you want to work in commercial or residential real estate. To be sure, because individuals are more likely to buy or lease a place to live rather than a location to operate a company, it is simpler to get into residential real estate – where there will always be more prospective clients and transactions. Commercial real estate, on the other hand, may attract a large…

Read more
istockphoto 1263914795 612x612 1

Real Estate Investments: The Hottest Alternative Investments You Do Not Want To Miss Out

One of the best ways to grow your money in the modern era is by making investments. Whether small or large, every investment has got the potential to be a profitable one. It wasn’t long ago that people only knew about the stock market as a primary investment method. But, this has changed pretty much with the arrival of better technologies for making investments and making profits out of them. The hottest topic in the domain of investments is the growing popularity of alternative investments such as real estate. The real estate industry has been in existence for a long time, but it has changed a lot from its original form. Better alternative investments are emerging in real estate, mostly due to innovations introduced by technical firms. There’s still much to learn about this, so don’t worry. We have explained everything about this trending topic in this blog post. Do not miss Aspire financial freedom. Find Out How Real Estate Investment…

Read more