Real Estate vs. Mutual Funds: Which is more suitable for you?

From a stable, long-term perspective, it is important to stay invested in both in a balanced manner.

Investment awareness along with investment avenues has increased exponentially, and investors are spoilt for choice. In a rapidly-developing country like ours, industry experts say, the basket of investments has to be balanced between tangible assets, that is, real estate, and risk-driven holdings, such as mutual funds.

Anand Sharma, Founder and Partner, Design Forum International (DFI), says, “There are several reasons for this diversification between the two types of assets – real estate and mutual funds. However, to understand that, one needs to look at the differences between the two kinds of investments.”

One of the key differentiators between real estate and mutual funds is the tangibility of the former. Sharma says, “An investment into property enables one to hold on to a tangible resource in the face of adversities and unforeseen circumstances. On the other hand, mutual fund investments are actually ownership of stakes in corporate entities.” He further adds, “More often than not, their value is driven by the corporation’s perception and performance.”

For instance, a Rs 20 share price for a company at the time of issue can be ascribed to Rs 250 on the day of the stock market’s opening. Over some days, its value can rise, and it can be trading at Rs 1500 on a given day. However, experts say if the company’s performance or perception drops, the same investment can lead to lower returns and even losses.

Sharma explains, “Being a non-tangible entity, there is no inherent value to mutual funds. The gains and losses are usually the results of market sentiment regarding that particular share’s value. In contrast, real estate is actually a tangible piece of land along with a built structure.” This means that some inherent value will remain attached to that investment, whatever may come. Even if one is a one-hundredth owner of a commercial plot, one still possesses something fixed that can even be used for further revenue generation.

According to Sharma, another aspect is that real estate is not only secure, but in times of accelerated growth, it has given huge returns. “For instance, from 2019 to 2021, there was a jump of approximately 50 per cent in the stock market indices. However, in that equivalent period of time, the value of prime properties had also grown by a lot. Therefore, over extended periods, the gains from real estate will be exorbitantly higher than those from mutual funds,” adds Sharma.

Note that, this is not to say that one kind of asset is preferable over the other one. For instance, while real estate may give higher returns, but the point of entry into mutual funds is much lower and therefore, much more affordable.

Thus, Sharma suggests, “from a stable, long-term perspective, it is important to stay invested in both in a balanced manner. While real estate is primarily a secured investment, mutual funds offer us the opportunity to participate in our nation’s economic growth story.”

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