Gold, Mutual Funds Or Real Estate: Which One Is A Better Investment?

If you held 500 grams of gold back in 1997, when the price of the commodity was Rs 472.25 a gram, you would have safely been holding about Rs 2.36 lakh at that moment. In 2019, the value of gold was Rs 3,520 per gram. This means if you are holding 500 grams of gold today, it is Rs 17.60 lakh. However, considering the fluctuation in its value, most gold holders would know that in the past six months, the net change in value is not great.

Compare this to land value.

If you had bought land in 1997 and built upon it, you would have secured the future of two of your children with the investment.

Sample this.

M Akram was lucky that he was allotted a 3BHK unit in 1982 in one of East Delhi's prominent residential pockets under the Delhi Development Authority's (DDA) initiative. Including the interest, he paid a total of Rs 80,000 for the property. Today, the property is worth over Rs 1.75 crore.

This is why we feel that real estate is a wiser investment option.

Real estate versus gold

Low volatility: Real estate is a stable investment. Unlike gold, it is something you really need. Among those who have owned a home and those who have lived on rent, tenants mostly crib about the amount of money they pay as rents which they could have used as EMIs (equated monthly installment). Although living on rent gives one the flexibility to be mobile, owning a house means you are ensuring a secure future. The price of gold often fluctuates. Hence, it is not as bankable as you may expect it to be.

Value increase: Through renovation and repairs, the value of property can be increased. Unlike gold, property dimensions can be altered to suit your needs. Most owners over time renovate and build on their land for a higher value.

Also read: Real Estate Investment Mistakes You Should Avoid

Leasing options: Even if you aren't using your property, you will always find a willing taker if the location is good. Rental returns are a good way to earn. You can't lease gold. It is also easier to mortgage your property as collateral.

Better security: Banks are not answerable for loss or destruction of your gold due to earthquake or theft, etc., while it is locked up in the bank locker. The same is not true of property.

Moreover, in the case of gold:

• There are no tax benefits on holding gold.
• The returns are cyclical. You may or may not be able to sell it at a cost you expect.
• The liquidity is low.
• The transparency is low.
• Ease of selling varies from time to time.
• There is no income potential.
• It is also prone to manipulation. Those with a motive to suppress the value will often find a way to do so and thus, finding good buyers may be difficult.
• When gold appreciates in value, it is mostly because of the devaluation of paper currency. Hence, any gain is nominal.
• Also, gold deposits over 500 grams, without a legitimate source of income, attract income tax under the gold monetisation scheme. The move has been strengthened after demonetisation. For a disciplined investor, equities have always been the top mode of investment. However, if high risk holds you back, real estate at the moment is welcoming, with choices and attractive payment plans.

Real estate versus mutual funds

Should I invest in property or mutual funds (MF), is a common question among millennials. Here’s a table to help you understand what works and what does not when it comes to these assets.

Risk factor: Everything that involves money can get risky. Real estate is low-risk. By this we mean that a property can be put to many uses- self-use, rent, flipping it at an opportune moment, etc. While it involves a lot of money to invest in a property, it has its benefits, too. The risks of MFs can be contained if you go with a moderate risk fund such as hybrid funds. Real estate risks can be contained if you go with the right location. 

Performance: Real estate is driven by sentiments as much as it is driven by policy changes. While MFs can garner higher returns for you, real estate gives you the benefit of having a roof over your head. It is the immediate benefit that you get when you invest in real estate.

Regulation: The Securities Exchange Board of India (SEBI) regulates mutual funds and, therefore, there are fewer chances of getting into trouble here. Property disputes are often time-taking but investment post all due diligence and good research will yield its benefits, too. 

Monitoring: MFs can be monitored from anywhere around the world. However, this stands true for real estate as well. Project management companies and CCTVs are modern-day tools you can use to monitor your property. Nonetheless, MFs are a less cumbersome asset to manage and doesn’t involve any third-party. 

Returns: While the yield is higher in case of MFs, a smart real estate investment can bring you similar returns. Location remains a key concern in that sense.

Investment volume: Cost of owning a property is way higher than investing in MFs. However, while MF might be a good option if you are looking at growing wealth, real estate is great if you are looking at self-use or even for rental returns. 

Tax benefits: Both investments can fetch your tax exemptions. However, tax exemption on MFs is higher and this is why it is a coveted asset category. Under Section 80C of the Income Tax 1961, you can avail of tax benefits up to Rs 1.5 lakh. Through indexation, you can save up some amount of tax even in case of a property but not as much as you can do in case of a MF. 

Liquidity: It may not be very easy to sell your property immediately and use the money for an emergency or immediate use. MFs, on the other hand, are easy to liquidate and will not consume much of your mind space.

Conclusion 

Many experts believe that gold and real estate are now secondary options and MFs are leading the game. If you are looking at pure investments, MFs may work for you. However, the traditional understanding of property yielding the sense of satisfaction and settlement is still relevant and this exactly why the government and policymakers are bent on easing land laws and ownership policies year after year.