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Better Investment Mutual Funds or Property

Real estate generates high returns on being sold at a time when markets are high. Highly unpredictable market conditions make it a challenge to estimate future returns in the real estate sector. However, purchasing a property at a low price and selling it when the prices of the location have skyrocketed makes it one of the best investments. For property investments, timing it right is the key to enjoying high returns. It requires planning your finances well in advance because the initial payment is in the form of a lump sum.

Mutual funds, on the other hand, offer a wide variety in terms of market caps, sectors that they invest in, market risks, etc. This enables investors to invest according to their risk appetites and financial goals. Investors can start with a small amount of Rs. 500 or pay in lump sum, making it a suitable investment tool for everyone. Besides, the returns can be roughly estimated because the interest rates and overhead charges are transparent. Mutual funds are a better tax-saving investment option than investing in properties.

Returns in Mutual Fund Vs Property Investment

Returns from mutual funds

  • Mutual funds can mostly beat inflation when you make your investment choices carefully and at the right time.
  • Despite unpredictable market conditions that may arise, it is not difficult to estimate the returns as other parameters like fees and charges – asset management charges, etc. remain consistent.
  • It is a versatile investment instrument, wherein an individual can start investing with an amount as small as Rs. 500. Thus, it is suitable for all, be it an experienced or a novice investor.
  • Generates higher returns over a long term.
  • ELSS mutual funds are tax free up to Rs. 1.5 lakh as per Section 80C of the Income Tax Act, 1961. No other mutual fund scheme offers tax benefits.

Returns from property

  • Yields from property cannot usually beat inflation.
  • Returns on a property are primarily determined by its location and rates often fluctuate, making it difficult to estimate the returns.
  • Property being bought for the purpose of inhabitation cannot be considered as an investment, since it would not generate any returns.
  • EMIs for purchasing a property proves to be a more expensive investment as compared to mutual funds.
  • Suitable only for individuals planning to invest a substantial amount of capital.

Why Invest in Mutual Funds?

These are apt for planning for life goals which range from children’s education and marriage to planning for their post retirement years.

A wide range of products

Mutual fund investment is suitable for everyone across risk appetites and investment objectives. For instance, equity investments are best suited for short term investments and, therefore, expose the portfolio to high market risks to generate high returns within a short span of time. As opposed to this, balanced mutual funds are recommended for healthy returns over the long term. Hence, they are not as risky as equities.

Different modes of investments

Investors can invest in lump sum or through easy installments or a combination of both. Besides, there are other options as well systematic transfer plans, switching between funds, systematic withdrawal plans, etc.

Risk diversification

Risks like market risk, sector risk and company risk are typical for mutual fund investments. This can be controlled through portfolio diversification. Not all risks like inflation may be foreseen. But when they are, selling mutual fund schemes or switching between funds enables investors to avert risks.

Disciplined investment habit

Saving a lump sum from our monthly income is a challenging task for everyone. Systematic Investment Plans (SIPs) in mutual funds encourage you to start small and inculcate a disciplined approach towards savings and investments. This enables you to take small steps towards building a robust corpus over the long term.

Economies of scale

Mutual fund investments involve purchasing and selling securities in large volumes. This reduces the cost per unit of a mutual fund scheme as compared to purchasing and selling stocks by stock brokers.

Why Invest in Property?

Here are the factors that make real estate and property a suitable investment option:

Investment objectives

Investing in property helps meet the wealth creation or buying a home life goal of the investor.

Liquidity

Property can be sold off whenever you want, but does not always guarantee good returns. As discussed earlier, this is because it is completely dependent on the prevailing market price for the location of your property.

Tax arrangements

If you want to sell your property within 3 years of it being purchased, the returns will attract Short Term Capital Gains (STCG), reducing your share of the return. If your annual income exceeds Rs. 10 lakhs, you will have to pay 30% as property tax. Selling the property after 3 years, it will be liable for Long Term Capital Gain (LTCG) at the rate of 20% after indexation.

Initial investment

Property investments have to be paid in lump sum as down payment. You may end up taking a bank loan and repay it along with high rate of interest. Alternatively, you can build a corpus over a few years and then invest in property.

Fraudulent activities

Cases of fraud are not unheard of in the real estate business. In fact, there has been an increased spurt of such incidents in the recent past. Investors need to invest in properties of well recognized real estate companies or undertake a thorough background check of the company that they are investing in.

FAQs on Mutual Fund or Property

Is it worth it to invest in mutual funds?

Yes, here are some factors that make mutual funds a suitable investment option

Is real estate or the mutual fund a better investment?

Both investment options have their own set of merits and demerits as they meet a set parameter of investors goals.

Real estate generates high returns on being sold at a time when its market prices are high. Highly unpredictable market conditions make it a challenge to estimate the future returns. However, purchasing a property at a low price and selling it when the prices of the location have skyrocketed makes it one of the best investments. For property investments, it is vital to time it right so as to enjoy high returns. It requires for you to plan your finances well in advance because the initial payment is in the form of a lump sum. Mutual funds, on the other hand, offer a wide variety in terms of market caps, sectors that they invest in, market risks, etc. This enables investors to invest according to their risk appetites and financial goals. Investors can smart with a small amount of Rs. 500 or pay in lump sum, making it a suitable investment tool for everyone. Besides, the returns can be roughly estimated because the interest rates and overhead charges are transparent. Mutual funds are a better tax-saving investment than investing in properties.

Which is the best mutual fund over the long term?

Some of the popular mutual fund schemes over the long term are:

  • Aditya Birla Sun Life Small & Midcap Fund
  • HDFC Monthly Income Plan – MTP
  • ICICI Prudential Focused Bluechip Equity Fund
  • Kotak Corporate Bond Fund
  • Canara Robecco Gilt PGS
  • DSP BlackRock Balanced Fund

Which is the best mutual fund for SIP?

The best mutual funds for SIP are-

  • SBI BlueChip Fund - Regular (G)
  • Franklin India Equity Fund (G)
  • Mirae Asset India Equity Fund - Regular (G)
  • HDFC Mid-Cap Opportunities Fund (G)
  • ICICI Prudential Bluechip Fund (G)

Which mutual fund is best for 1 year investment?

Here are some of the best mutual fund 1-year investments:

  • Franklin India Smaller Growth Companies - Growth
  • DSP Blackrock Micro Cap Fund - Growth
  • DSP Blackrock Small and Midcap - Growth
  • SBI Magnum Mid Cap Fund – Growth
  • Birla Sun Life Pure Value Fund - Growth

Which mutual funds are better to invest?

Here are some of the best mutual fund schemes to invest in-

  • Aditya Birla Sun Life Small & Midcap Fund
  • HDFC Monthly Income Plan – MTP
  • ICICI Prudential Focused Bluechip Equity Fund
  • Kotak Corporate Bond Fund
  • Canara Robeco Gilt PGS
  • DSP BlackRock Balanced Fund