Real Estate vs Mutual Funds – Which is the Better Investment Option?

Introduction

The Indian stock market has performed very well over the past few years. With the formation of SIP (Systematic Investment Plan), investing in mutual funds is gradually becoming attractive for many investors.

The good performance of equity markets has attracted many individual property buyers to enter into this sector as well, with an aim to generate high returns by buying property at lower prices and selling them at a higher price in the future.

However, there are many risks associated with property investment that could lead to substantial losses, while mutual fund investments are relatively low-risk. In this article, we shall compare real estate and mutual funds investment options so that you can make an informed decision about which is the better investment for you.

Monitoring

Real estate investments are often considered risky due to the inability to monitor your performance. Failure, however, can result in disputes over time if you have invested with partners or even litigation!

However mutual fund investing is much more accessible as it's possible for someone monitoring online during which they're able to track how their funds performed and ultimately bring down any chance at conflict among other issues like this one does not exist since there will only be 1 person who knows what did really happen when all evidence point towards him/her is correct so that would make things easier on everyone involved in the case.

Liquidity

Real estate investment is not as liquid as mutual fund investment. It takes time to find a buyer for the property and get the money exchanged, which could result in a delay in realizing the invested amount. In the case of mutual funds, investors can redeem their units on any business day and get the money credited to their bank accounts.

Risk Factor

If you want to invest in something safe and reliable, then real estate is an excellent choice. Mutual funds have had their share of negative press due to their potential for loss should the market drop or crash like it did during 2008-2009 when many investors lost all they invested because there was no tangible asset backing up those investments (namely government bonds).

Tax Benefits

Investors can avail of tax benefits on their capital gains in mutual funds, whereas there is no such tax benefit for real estate investment. Also, income from property rental is taxed at the applicable slab rates.

Returns

The returns realized from investing in mutual funds are not taxed, which makes it more cost-effective than property investment.

Power of Compounding

Since mutual funds reinvest their earnings, the money compounds over time and creates a nest egg that can be sold for cash to fund future needs. In real estate investments, there is no compounding of returns since rental income is the only source of the return on investment.

Conclusion

So, it is evident that mutual funds offer superior returns as compared to property investment. In addition, the risk associated with mutual fund investment is lower than that of property investment. Hence, we can conclude that mutual fund investment is a more prudent option than real estate investment.