Real Estate vs Mutual Fund: Which is a Better Investment Option?

Difference between Real Estate vs Mutual Fund

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India is a land of many opportunities, especially when it comes to investments. The top two such opportunities that Indian investors go for are real estate and mutual funds. Out of the two, several Indians prefer investing in properties over mutual funds for quite a lot of reasons. This article will tell the reader exactly why.

What are Real Estate Investments

Any commercial or residential property that is of a solid build is considered to be real estate. Plots of land are considered to be real estate too. If an individual purchases any of these, it is said that he or she has made a real estate investment.

What are Mutual Fund Investments

Mutual funds are defined as a bag of equity shares that an individual can purchase as per their own individual capacity. Mutual funds are managed by Asset Management Companies (AMCs). It is monitored by a fund manager who has spent at least two decades in the stock market. These investment vehicles are regulated by the Securities and Exchange Board of India (SEBI) and Association of Mutual Funds in India (AMFI). Mutual funds are distributed in units by the AMCs and are purchased through SEBI-registered stock broking firms. If an individual purchases these units through a registered stock-broking firm, it can be said that he or she had made a mutual fund investment.

Why are Real Estate Investments Favoured Over Mutual Funds

Indian investors prefer to park their money in properties over mutual funds because:

  • It is the only asset class that can be funded by long-term debts, given that the value of real estate investments appreciates more consistently than that of any other asset.

  • Real estate investments which have been funded by loans help property buyers claim tax deductions. Additional tax benefits are available for jointly-owned properties, provided the income of a spouse is disclosed while applying.

  • Real estate investments help investors earn additional income if they rent it out.

  • Long term real estate investments have historically made investors very wealthy.

Why do Investors Lack Confidence in Mutual Funds

Investors generally do not trust mutual funds because of the unpredictable nature of the stock market, as mutual funds are essentially a diverse portfolio of equity shares. Local and global factors and economies affect stock markets worldwide, making mutual fund investors exposed to the negative developments in any part of the world.

Real Estate vs Mutual Fund: Key Differences

Some of the main differences between real estate and mutual fund investments are as follows:


Real Estate Investments

Mutual Fund Investments

Market Volatility



Risk Factor

Low, as comparatively, very few factors affect the real estate market.

High as there are many factors, domestic and international, affect the stock markets around the world.

Nature of the market

Comparatively stable as very few factors can cause a drastic shift in the prices of properties.

Highly unpredictable as stock markets are affected by many more factors than the real estate market is.

Passive income earning potential

Real estate investments can help you earn rent income.

Mutual fund investments can help you earn dividend income, but there are very few such mutual fund schemes in the market.

Return potential

Low, but stable, as historically, real estate prices have only appreciated over time.

High, but mutual fund investments come with an added risk factor. In the case of mutual investments, the higher amount of risk you are willing to take, the greater will be your returns and vice versa.

The bottom line is, if you want an investment option that is safe and has historically given consistent returns over time irrespective of the economic climate, you must invest in real estate. If you want to invest in property but are lacking the funds to do so, you can always take a house loan. As a user of Finserv MARKETS, you can avail some exciting benefits such as flexible repayment tenure, competitive interest rates, balance transfer facilities and home loan top-ups.