Before we decide which one is better, let’s start out by understanding what mutual funds and real estate investment actually are!

Mutual Funds: An investment program that is funded by shareholders who trade in diversified holdings. Mutual funds are professionally managed investment funds and it can be counted as ‘Financial Asset’.

Real Estate Investment: Real estate is a ‘Physical Asset’ which involves the purchase, ownership, management, rental, and sale of real estate for profit.

Most investors, especially ones who refuse to explore new options and stick to the ones they trust, believe that real estate investment yields more profits. According to them, mutual funds are a risky investment and any investment in mutual funds is similar to gambling. But according to a survey conducted in India, the profits from mutual funds far exceeded the profits yielded from real estate investment.

Real Estate had always been in demand, and that especially came into play after 2001 when real estate prices persistently rose and refused to go down. Business investors developed a trustworthy relation with real estate and a lot of people with easy cash flow relied on their real estate projects for an inflow of profits. All of that significantly changed in 2011 when most real estate prices began to sink, and the profits they generated started decreasing.

Equity mutual funds carry a lot less risk in comparison to the real estate investment because they provide room for diversification. Through equity mutual funds, our money is spread far and wide among different asset classes and stocks to minimize the risk.

You have to be a really ignorant investor to believe that the profits in either of the investments are consistent or guaranteed. With the investment, there’s always a risk factor involved, and usually, it is influenced by the trends in a country’s economy.

Let us say your GDP is growing by 8% every fiscal year. In this case, you can expect a steady rise of 12-13% in your real estate investment profits and a 16-18% increment in your equity mutual funds profits.

Equity mutual funds offer you the privilege of diversifying your investment. Sudden ripples and inconsistencies in one stock can be balanced by increased profits in the other. This vastly reduces the risk factor of investment. But real estate investment does not allow diversity. Also, if investors hold onto real estate for long term then they can surely apply same strategy for equity mutual funds without worrying about market volatility.

Moreover, the liquidity of equity mutual funds is extremely high. If you find that your funds are underperforming and have ceased to benefit you, then you can just sell them and recover your money. But there are a lot of challenges you face in terms of liquidity when you invest in real estate. It could be the time of the year when real estate is exclusively benefitting the buyers and it may be difficult for you to find a buyer due to the buyer’s market. When the sale of the property is urgent, it usually results in a loss on the seller’s part and you get much lesser than the true value of your property.

But there are few characteristics of real estate which makes it a unique investment like tax benefit, it can give a passive source of income, a fixed asset which you can pass over to next generation, more control over affecting factors and it also gives you a mental peace (with a status) that you possess a solid asset base for future.

Choosing between real estate and mutual funds is always a dilemma for most of us. But it’s important to understand that both belongs to two different asset classes & serves differently to different goals. Therefore, the decision should be base on individual situation, liquidity needs, goal, amount & duration available for investment and few other factors.