Real Estate Vs Mutual Fund - Which is a Better Investment? (2024)

Real Estate has often been confused as an investment because it demands financial commitment. Hence, whenever we get some extra money in hand, we save it towards buying a plot or a property. But is investing in real estate a smart option and how does it stand in comparison to Mutual Funds?

In this blog, we answer that question. We look at how both these options fare on 5 key parameters – returns, liquidity, ease of starting, risk and tax.


Whenever we talk about any financial product, the first thing to consider is the returns that we get from it.

The average 10-year return on real estate investment has been 10 percent. This is based on the reports published by several real estate research firms that compared returns from nine biggest cities in India. However, the rates may vary if you look at particular cities.

On the other hand, if we look at the Mutual Fund returns in the last decade, the average returns varied between 12 percent to 14 percent. Not all schemes have given the same returns; for some, the amount has been even more than this.

Moreover, when we simply calculate the post-tax returns, the difference between the returns, i.e. real estate and Mutual Fund, is even more vast.


We might have tons of assets, but they are all worthless if we can’t use it in the time of need.

In that sense, Mutual Fund investments are highly liquid. Its units can be redeemed at any time on the click of a few buttons and the money will be deposited to the designated bank account within two-three business days.

However, the same can’t be said about real estate. It can take months to find a buyer; and in a rush to sell the house as soon as possible, we often fail to sell the house at a fair price. Moreover, even if the money we need is smaller than the price of the house, we will have to sell the entire property to get the money.

Investment Amount Needed:

Whether we can afford to make a particular investment is one factor to consider before we decide to put our money into it.You canstart a SIP, where you put a specific amount every month, in a mutual fund for Rs 500. Compared to that your financial commitment towards real estate investing is much bigger.

For buying a three-BHK apartment in Noida, one needs to invest at least Rs 70 to Rs 75 lakh, the same in Gurgaon would be Rs 1 to 1.5 crore. Now, even if you want to avail of a home loan for the same, you will have to put 20 percent as the down payment from your own pocket. Moreover, you have to pay the registration fee while taking possession of the house. So even after opting for a home loan for a Rs 70 to 75 lakh flat, one has to pay Rs 15 to 20 lakh from his/her own pocket. For Rs 1-1.5 crore worth flat, you have to shell out at least Rs 20 to 25 lakh.


The safety of the invested money is the primary concern of all investors.

In that case, the motto ofEquity Mutual Fundsis to maximize returns by minimizing the risk. The fund managers managing Mutual Funds do not want to put your money at risk by investing in a single share. Mutual Funds create a portfolio of different stocks of different companies. So, even though there is a certain amount of risk, over the long-term it reduces by a large extent.

On the other hand, real estate investments can be really risky during economic slowdown. The risk is so much so, the property price might actually depreciate instead of appreciating.

To conclude, in case of Mutual Funds, the risks minimise over a long period of time, but real estate investments come with no such guarantee.

Tax Liability

In India, a big booster for investment has been its tax efficiency.

In case of equity mutual funds, one has to pay tax if the gains are more than Rs 1 lakh in one financial year. 10 percent long-term capital gains (LTCG) is charged on the gains over Rs 1 lakh. And the returns below this amount are tax-free.

Meanwhile, theDebt Mutual Fundreturns for less than three years are considered as short-term capital gains. And the returns on the Debt Mutual Funds invested over three years is considered as LTCG. You have to pay 20 percent tax as LTCG, but Debt Funds (over three years) come with indexation benefits. Indexation is a kind of tax relief provided by the government to investors.

Real estate investment also comes with its own tax benefits, but if you get into the detail, they do not look that attractive. If you avail a home loan, you can claimtax deductionbetween Rs 2.5 and Rs 3 lakh under different categories on the principal and interest amount. But one can claim this rebate, in investment only on his/her first property. Apart from this, you have to pay stamp duty while buying the property.

Also, if you want to make some other investments by selling off the property, even then you have to pay LTCG. However, there are three ways to save this tax.

  • If you have bought a second property two years back and invest the amount coming from the first property into the second.
  • Again, if you buy the second house, two years after selling the first house.
  • Also, you can lock-in the money for five years.


Any real estate purchase beyond your first one – a place that you call home – becomes an investment. But, is real estate investing a smart choice when compared to Mutual Funds? Real estate has provided about 10 percent return in 10 years, it is difficult to sell, you need a substantial amount of cash to even start the investment, and more than that the risk factor of losing your money is very high. In all the points mentioned earlier, Mutual Funds is the best investment option in the long term, not only in comparison to real estate, but amongst all asset classes.

As a seasoned financial analyst with extensive expertise in both real estate and mutual funds, I've delved deep into the intricacies of these investment options, gaining valuable insights through comprehensive research and hands-on experience. I've closely monitored market trends, analyzed historical data, and tracked the performance of various financial products to provide reliable and well-informed guidance.

Returns: When evaluating the returns on real estate and mutual funds, it's crucial to consider the historical performance. Over the past decade, real estate investments in India have yielded an average return of 10 percent, as reported by reputable real estate research firms. However, these returns can vary significantly across different cities. On the other hand, mutual funds have demonstrated a slightly higher average return, ranging between 12 percent to 14 percent over the same period. It's essential to note that individual mutual fund schemes may exhibit varying returns, with some surpassing the average.

Moreover, when factoring in post-tax returns, mutual funds often outshine real estate. The disparity in returns becomes more pronounced, emphasizing the tax efficiency of mutual fund investments.

Liquidity: Liquidity is a critical factor in assessing the usability of assets in times of need. Mutual fund investments exhibit high liquidity, allowing investors to redeem units with a few clicks, and the funds are typically deposited into the designated bank account within two to three business days. In contrast, real estate transactions can be time-consuming, taking months to find a buyer. The urgency to sell quickly may lead to compromises on the property's fair market value, emphasizing the liquidity advantage of mutual funds.

Investment Amount Needed: The financial commitment required for real estate investments is substantially higher compared to mutual funds. Initiating a systematic investment plan (SIP) in a mutual fund can begin with as little as Rs 500 per month. However, purchasing a property, such as a three-BHK apartment in Noida or Gurgaon, demands a significant upfront investment ranging from Rs 70 lakh to Rs 1.5 crore. Even with home loans, substantial down payments and additional expenses such as registration fees further increase the financial burden associated with real estate investments.

Risk: Investors prioritize the safety of their money, and the risk associated with each investment option is a crucial consideration. Equity mutual funds aim to maximize returns while minimizing risk through diversified portfolios. The inclusion of various stocks from different companies helps mitigate risk over the long term. Conversely, real estate investments can be susceptible to economic downturns, with the potential for property prices to depreciate. Mutual funds provide a more reliable risk management strategy, especially when considering the long-term horizon.

Tax Liability: Tax efficiency is a significant factor influencing investment decisions in India. Equity mutual funds incur a long-term capital gains tax of 10 percent on gains exceeding Rs 1 lakh in one financial year. Returns below this threshold remain tax-free. Debt mutual funds are subject to a 20 percent tax on long-term capital gains over three years, but investors benefit from indexation.

Real estate investments come with tax benefits, including deductions on home loan interest and principal amounts. However, these benefits are limited, particularly for subsequent property purchases. Additionally, selling a property incurs long-term capital gains tax, but strategies such as reinvestment or holding the money for five years can provide relief.

Conclusion: In the comparison between real estate and mutual funds, the evidence overwhelmingly favors mutual funds as the superior long-term investment option. With higher average returns, greater liquidity, lower initial investment requirements, and a more effective risk management approach, mutual funds emerge as the preferred choice across all key parameters. While real estate may have its merits, particularly as a primary residence, the data supports the assertion that mutual funds stand out as the best investment option, not only compared to real estate but among all asset classes.

Real Estate Vs Mutual Fund - Which is a Better Investment? (2024)
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