Buying a home and investing in Mutual funds (equity and debt) cannot be compared blindly. As these investments come from three different asset classes namely Real estate, equity, and debt. Every asset class has its own pros and cons. One should study those and decide where to invest.
- Real estate requires a huge initial investment where mutual fund investment can be started as low as 500 rs. SIP.
- Real estate investment is a most illiquid investment as at the time of emergency you cannot sell the house immediately and if you try to sell it you may have to sell it at a discounted rate than the prevailing market rate. Panic real estate will always fetch lesser resale value. Whereas mutual fund investment is very liquid. The amount will be credited in your account within 2 days of redemption date.
- There are many hidden charges while purchasing real estate. We may not know them while purchasing the property. But in case of the mutual fund, all the transaction cost are known and are transparent.
- Real estate industry lacks a strong regulator who curbs the unethical and illegal transactions in buying and selling properties. REARA is the recent development happened in the real estate market. Whereas Mutual fund is regulated by SEBI which promises a clean legal buying and selling mutual fund transactions.
- The rate of return of real estate is less than equity mutual fund. If you analyze the historical data you may come to know that equity is the best asset class which provides inflation beating returns in the long term. It helps in wealth creation.
- Actually, returns in real estate investment mainly depend upon many factors such as the location of the property, quality, and size of the property, the age of the property, builders goodwill, accessibility of infrastructure like market, schools, railway station, hospital from the property, etc. Only when you possess the property which is in high demand it can give you handsome returns. Whereas in a mutual fund you only have to select a good quality mutual fund and invest systematically for wealth creation.
- In equity mutual fund you have many options to choose from depending upon your risk appetite and investment goals such as large-cap, multi-cap, mid and small cap, hybrid fund, a value fund, etc. Options available in debt category also e.q.long term debt fund, short term, balanced fund or liquid fund, etc. Whereas real estate offers only two options i.e residential or commercial property.
- Cost vs return in real estate is low. It means annual cost in maintaining a property is much higher than the mutual fund. We have to pay municipal taxes, society maintenance charges, wear and tear cost, etc. We have to incur legal fees at the time of purchase Whereas in the mutual fund we just have to pay fund managers fee. After deducting above mentioned costs, the return may be lesser in real estate than the mutual fund.
- Equity mutual fund can be tax efficient investment avenues that can help reduce your tax liability. You can claim deductions up to 150000 rs under section 80 C by investing in ELSS fund. LTCG will be applied to the gains which are more than 100000 received in one financial year. Whereas yields from real estate are taxable after indexation.
- The mutual fund has the option of Systematic Investment plan(SIP) at the time of investing which helps to accumulate money in small units at regular interval. It also offers Systematic withdrawal plan (SWP) to withdraw money in a small portion as monthly income. No such arrangement found in real estate.
- Investment in real estate requires much research and physical attendance in the selection of the property. It requires a lot of time and money. If we got stuck in any illegal property purchase it is very difficult to come out of the mess. A long court case may be required to get a clear title. Whereas selecting the right mutual fund is now a piece of cake. All the information about the product is available on the internet and if we came to know that we invested in a not so good mutual fund we can quickly sell it off and get our money back.
- Normally people get attached emotionally to their investment in properties because of its physical presence. So booking profit from real estate sometimes is emotionally hurting. It is not there in the case of a mutual fund. We can easily liquidate it and book our profits.
These are the most important parameters on which we should compare real estate and mutual fund investment. And mutual fund comes as a Winner.
You should possess only one house where you want to live happily !!! Make that house your dream house !!!
