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Mutual funds vs real estate: Which is best investment option

Posted by kapoor Infra on March 1, 2022
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Mutual Funds VS Real Estate

Best investment option

Mutual Funds Vs Real Estate: Investing for the long term requires proper housework as it does not give much chance to recover losses if you miss out on meeting your investment goal. Best Investment option for you.

According to tax and investment experts, the first and foremost thing to consider while investing for the long term is to choose an option that can beat the average increase in inflation.

This means that your investment instrument should give returns of more than 6-7 percent per annum. The way the returns on government-backed small savings schemes have come down in the last decade, people have started looking at other options like the stock market, equity mutual funds, real estate, etc.

According to investment experts, generally, long-term mutual fund investments give at least 12 percent returns while real estate investments give around 8 percent returns in the long term.

However, real estate includes rental income that an investor can further invest in mutual fund SIPs. Therefore, if an investor does not want to invest directly in the stock market, he can think of investing in equity mutual funds or real estate. But, if an investor has to choose one of these, the situation can get tricky.

Speaking on Mutual Fund Vs Real Estate Investing; Pankaj Mathpal, MD & CEO, Optima Money Managers, said, “If one has surplus funds to invest, mutual funds are a better option for long term investors from the return perspective as it gives around 12 percent returns over the long term. or may say for 15. or more years. However, in the case of real estate, the annual yield that can be expected over a long period will be around 8 percent.

Moreover, there is the ease of liquidity in mutual fund investments as one can withdraw their money with just a single digital click. But, in the context of real estate investing, liquidating one’s investments will take a bit longer as it is a more physical process than digital and there is no partial withdrawal in real estate investing.

Pankaj resonated with Mathpal’s thoughts; Kumar Binit, Co-Founder and CEO, Finmap, said, “Real estate investing does not give an investor the power of compounding where an investor gets interested on interest.

Management of mutual funds is very easy; Once you have made an investment for a particular time period, you only have to check it once. Moreover, mutual fund investing is now completely paperless, making it extremely convenient. There are several steps to managing your real estate investment after you have bought it.

However, Sebi registered tax and investment expert Jitendra Solanki said real estate investment in commercial property can help an investor diversify a portfolio, provided the rental income is invested in mutual funds in SIP mode.

After deducting annual maintenance and various municipal tax payments, the average annual rent on residential property will fall by around 2.50 percent, while it will be around 8 percent if it is a commercial property.

So, if an investor invests Rs 30 lakh in a mutual fund, after 15 years it will become around 1.65 crores at the rate of 12 percent per annum. Similarly, 8% annual profit (irrespective of residential or commercial property) on ₹30 lakh in immovable property would be around ₹95 lakh.

Calculation of rental income from residential and commercial property makes a ₹30 lakh immovable property asset; Jitendra Solanki said, “In case of monthly rental income from residential property, it will fall to around ₹6,250 [(2.5% of ₹30 lakh)/12], while it will be close to ₹20,000 [(8% of ₹30 lakh) /12] In case of commercial property.

So, if an investor invests ₹30 lakh in a commercial property, his monthly rental income will be ₹20,000. If this ₹20,000 is invested in a monthly SIP, then after 15 years, it will earn around ₹1 crore.

Hence, the total return on one’s commercial real estate would be around ₹1.95 crores, as against ₹1.65 crores from equity mutual funds over the same period. In addition, the investor will have a diversified portfolio where partial withdrawals through mutual funds and lump sum withdrawals from real estate will be available.

Jitendra Solanki said that a lot depends on the choice of the investor, whether he is interested in a diversified portfolio with partial and lump sum withdrawal facility or simple investment options with maximum liquidity and ease of withdrawal and investment facility.

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