Between Real Estate and Mutual Funds Which Is a Better Investment in UAE?

Between Real Estate and Mutual Funds Which Is a Better Investment in UAE?PolicybazaarAverage Rating / 5 ( reviews)
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One of the age-old forms of investment is investing in real estate. Long before the stock market was even conceptualized people had been buying, selling, and leasing land. There were numerous reasons behind people opting to invest in real estate, such as asset appreciation as the property value tends to grow with time, regular income via rent, and security for the property owner’s family. Additionally, there were also no complicated calculations or formulas involved when it comes to these investments.

However, in today’s age, the investors in the market tend to feel overwhelmed because of the sheer number of investment avenues that are available to them such as bonds, stocks, gold, and mutual funds, among others.

In this thread, we will be further comparing two famous investment avenues available to the investor out there – real estate v/s mutual funds.

Real estate Investment

Real estate is a physical land or real property which involves land along with anything immovable or fixed or permanently attached to it such as roads, buildings, fences, trees, etc. In other terms, real estate consists of land, along with all man-made and natural structures that are attached to it. As to being an investor, one can sell, buy, or lease a commercial, industrial, or residential property or even a part of a land that does not have any structures.                                                                                                                                                                                                                                        

Mutual Fund Investment 

Mutual funds are investment avenues that work by pooling in funds from different investors that have similar financial goals and then invest them on the behalf of the investors in instruments that are market-linked. The investment portfolio of a particular mutual fund scheme is managed by a team consisting of professional fund managers. Some mutual fund schemes offer a regular stream of income others might offer the option to grow one’s capital by investing in the right type of assets.

Real Estate vs. Mutual Funds: Key Features

Features

Real Estate

Mutual Funds

Simplicity

Different from the other market-linked investment avenues, real estate investments don’t require the investor to understand the various complicated jargon or the statistical ratios. It is a quite simple investment market that is driven by demand and supply and is quite simple to get your head around.

The investor, in order to find the mutual fund scheme that suits him or her, needs to look at several performance indices and ratios. Since the market volatility affects the mutual fund returns, this is important for an investor to understand.

Increase the Investment’s Value

Once an investor buys a property he or she can increase its value by working on it. For instance, a garden can be grown or a terrace could also add quite the value. This can help in getting good returns.

In mutual funds, the return on the investment depends on the underlying assets’ performance and nothing can be done on the investor’s end to increase the investment’s value.

Inflation Effects

Real estate investment is a natural guard against inflation. Usually, as the market booms, real estate prices tend to rise as well.

Inflation tends to negatively impact mutual fund returns. The reason behind the same is that the investors in the market tend to withdraw the investment or refrain from investing any further in the market during inflation.

Regular Income and Capital Appreciation

When an investor purchases a property, there are 2 possibilities of income. First, the value of the property is likely to increase with time, and second, a regular income can be earned via rental. Therefore, it offers capital appreciation along with a regular stream of income for the investors.

While one invests in mutual funds, there is a choice that needs to be made between dividend and growth alternatives. This means that it can either be growing your portfolio or a regular income stream, not both.

Liquidity

The investments in real estate are not of high liquidity. It is a time-taking process to sell a property and it usually involves quite some months. Hence, liquidity is not a strong point about these investments.

Investments in mutual funds can be liquidated in just a few days. Thus, as compared to real estate they offer higher liquidity. This can be helpful, especially in case of any financial emergency.

Minimum Amount for Investment

Traditionally, real estate investment required quite a large corpus of funds and was not the option for small investors. However, this barrier does not really exist due to options like Real Estate Crowdfunding and REITS. Now, the investors can participate in the market for real estate with lesser amounts.

Mutual fund investments can be carried out even with a small amount of investment and it can be a good option for someone who is a regular saver.

Maintenance

Generally, real estate properties need maintenance. This means that a real estate investor needs to invest both time and money to keep the property in good shape.

Investments in mutual funds don’t need any maintenance. Additionally, the professional fund managers regularly rebalance and review the portfolio to ensure that it is in sync with the objectives of the scheme.

As it is clear by now, both investments in real estate and investment in mutual funds have its pros and cons. Hence, it is vital to abide by your financial plan before going ahead and making any financial decisions. You should determine your financial goals as well as your investment objectives. These goals and objectives will help in defining your appetite for risk for your investment and the time duration for your investment.

For instance, if you wish to build a corpus for your kid’s wedding, then your financial goal requires you to seek long-term investment options. The risk for investment depends on your individual risk appetite. Mutual funds offer low, medium, as well as high-risk options. Hence, it is important to be sure about your risk appetite before opting for any mutual fund scheme. At the same time, real estate investments are considered a safer investment avenue when compared to mutual funds since they do not have any impact from the market volatility.

The Bottom Line

As an investor, there is nobody better to determine the type of assets that suit your financial and investment goals. While real estate may seem like an avenue that is safer, if you are willing to take up some risks for high returns, then equity mutual funds may be the right choice for you.

Before you start investing, make sure you are clear about your financial goals and seek expert advice if needed.

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