You need to consider 5 important factors to weigh them to make an informed decision visa vie returns, liquidity, ease of starting, risk, and tax benefits. In your quest for long-term wealth creation, this guide will help you clarify why property vs. mutual fund is a key decision and how it complements your end goal.
Returns
Returns are the primary deal breaker when it comes to the age-old debate of Real Estate vs Mutual Funds. In the last decade, Indian real estate has given an average return of about 10% per annum, these results may vary ever so slightly depending upon the location. Properties in the prime real estate market in Charholi, Pune, where giant townships like Pride World City stand, might get more appreciation than the rest.
When it comes to mutual funds, in the last decade, equity mutual funds have given returns between 12% to 14%. However mutual funds are subjected to market variability, which is why the actual results may differ.
Liquidity
Liquidity is also an important issue when it comes to investment. Mutual funds are known for their liquidity, allowing deliverance with just a few clicks, and the money gets credited into your account within 3 business days. This makes the investment in mutual funds more liquid- you can access your money quickly.
In contrast to this, real estate is a highly illiquid asset. Selling a property is time-consuming, it can take months or even years, depending on the market. The lack of liquidity is the downside of real estate as compared to mutual funds which have a clear edge.
Begin with Ease
It's no secret that investing in real estate is expensive. A 2 or 3-BHK flat in a prime locality like Pune could cost anywhere between ₹70 lakh to ₹1.5 crore. Even after the mortgage, you'll have to pay at least 20% upfront, along with the registration and stamp duties.
Mutual Funds, on the other hand, are more accessible. You can begin your investment journey with as little as ₹ 500 per month through a Systematic Investment Plan (SIP), making it favourable for those who want to start small and watch their investment grow gradually.
Risks Involved
Risk is quite inherent in every investment, and when it comes to real estate vs mutual funds, the story is not so different. Since Mutual funds are diversified across different stocks or bonds, the potential loss if the stocks perform poorly is minimal. Over the long term, mutual funds generally carry less risk.
Although real estate is a more tangible investment, it also comes with risk factors of its own, particularly during economic downturns. Property values can stagnate or even decline, particularly in slow-growing or oversupplied markets.
Efficiency of Tax
Mutual funds are tax-efficient, specifically for equity funds. Long-term capital gains over ₹1 lakh are taxed at 10%, and gains below this are tax-free. Debt mutual funds also deliver additional tax benefits through indexation for investments held over three years.
Real estate also has tax benefits of its own, especially with home loan interest deductions. However, these benefits only apply to your first property. Any Gains from selling property are subject to capital gains tax, although reinvesting in another property within a certain period can help reduce this tax.
Conclusion
The answer to the age-old question of property vs. mutual fund depends on your financial goals, risk tolerance, and investment timeline. Real estate presents a more tangible asset and can yield good long-term results, especially in growth areas like Pride World City, Pune. However, it requires a significant financial commitment which is less liquid and riskier during market downturns.
Mutual funds on the other end of the spectrum are more accessible, liquid, and tex efficient, making them a preferred choice for first-time investors. For people who are looking for a diversified, low-commitment investment with flexibility, mutual funds are often the better option.
Both real estate and mutual funds can effectively create long-term wealth, but the correct choice depends on your financial situation.
