Real Estate vs Mutual Funds, where should I invest? Should I invest in Real Estate or Mutual Funds? What to choose between real estate vs mutual funds as an investment option? Which is the better investment option between mutual funds and real estate? Is real estate the best investment?

Most fresh investors keep asking these questions to us while planning their investment journey.    

Choosing between real estate and mutual funds as investment option is mostly the first step for majority of investors in India. The word “property” is traditionally and closely linked with building financial assets in India and that is why real estate investment has been the first love for Indians when it comes to investing.

In this article, we will compare real estate vs mutual funds and see which one is the better investment option out of two.


What is Real Estate investment?

Real estate investing is the process of purchasing real estate asset to earn an income rather than for personal use.

Investing in real estate includes investing in a plot, or a residential flat, or a commercial building or retail space, so that he or she can make profits from rental income as well as the appreciation of the value of real estate asset.   

Overview of Real Estate Investment in India:

Over the last few years, if we check the real returns from real estate investment in the top metro cities in India such as Delhi, Mumbai, Bengaluru, we can deduce that returns have been around 4 to 6% per cent per year. However, if we consider tier II cities and other capital regions, Real estate investments have not even come closer to achieving that earning.

What is mutual fund investment?

Mutual fund investment is very simple to understand! Asset Management Companies (AMC) gather fund from number of investors and create a pool of money to further invest in number of asset classes.

Every person who has invested in the fund owns units of the portfolio based on the portion of money he or she has invested. The profit generated through this collective investment process is distributed across mutual fund investors on a proportional basis.

You can also refer to this mutual fund investment guide which can help you to understand each and every aspect of mutual fund investment in detail.

Overview of Mutual Fund investments in India:

There has been a record break investment in mutual funds in India. Here are few insights from ICRA Analytics (for the quarter ended March 2021) which will help to understand the current trends in mutual funds industry in India.


According a report by ICRA Analytics, more than 35 lakh folios were added in Quarter 4 of Financial Year 2021 as compared to the addition of 10.28 lakh folios in Quarter 3 of Financial Year 2021.

The report further disclosed that the total number of folios went up by 4% on Quarter on Quarter basis and 9% on YoY basis, marking a record high.

The upside was fuelled by plenty of liquidity in global markets as well the hopes for a quicker economic recovery. March saw a significant trend, with monthly contributions exceeding Rs. 9,182 crores for the first time.

At the quarter’s end, Assets under Management for Systematic Investment Plan stepped to Rs.4.28 lakh crore, up by 7% year on year. At fiscal year-end, SIP AUM attributed for 14% of total industry assets. 

Comparison between Real Estate vs Mutual Funds:

Here are few comparison points between investment in mutual funds vs real estate which will help you to decide whether to choose real estate or mutual fund investments in India


Liquidity is one of the key distinctions when you compare between real estate vs mutual fund investment. While the real estate investment is extremely illiquid, mutual fund investment can be redeemed any time at the investor’s discretion.

In most cases, it may take years to sell real estate investment if an investor is unable to find the appropriate buyer. An investor investing in real estate not only face liquidity issues but the entire exercise of selling real estate assets is a complicated and time consuming process.

It can take several years to find the right buyer, and in haste to sell the property, an investor probably ends up selling it at a lower price. Even if the amount of money required is less than the selling price of the house, an investor will have to liquidate the entire property to somehow obtain the funds.

Furthermore, a real estate investor can’t sell the property in parts if the he or she needs a small of amount of money. For example, the investor needs to sell the entire property of 1 Crore even if the investor is in need of 30-40 lakhs.

But when it comes to advantages of real estate vs mutual funds, mutual funds are highly liquid. Not only mutual fund investors can sell mutual fund units quickly but units can be sold in parts. The turnaround time in case of mutual fund redemption is very low when we compare liquidity in both real estate vs mutual funds.

Legal Issues:

As compared to mutual funds, real estate investing requires a great deal of documentation and legal procedures. Additionally, real estate investors need to pay additional expenses such as CERSAI fees, stamp duty, and registration fees. For real estate investors, this can be a lengthy and painful process.

In addition to this, post purchase legal issues can wreak havoc on real estate owner. The property owner especially NRIs may face legal issues arising from unauthorized land grabbers as NRIs can’t visit their property regularly.

Always remember, real estate disputes have a history of long legal battles in India. The property disputes do not only decrease the overall value of the property but also kill the returns on real estate investments.

Even if the real estate owners let their property on rent, managing a difficult tenant can drain your energy. An investor may face serious conflicts with tenants and may end up wasting hard earned money and other resources for legal eviction. 

On the other hand, if you compare mutual funds vs real estate investment or rental property vs mutual funds, mutual fund investment is a straightforward process without any legal complications. Mutual fund investing in India is a simple process and an investor need not to worry about any legal aspect of investment. 


Real estate investments are frequently regarded as challenging due to the ineffectiveness of measuring their financial performance.  

The returns on real estate investments can vary from 6% to 10% per year at metro cities. Quite often, the assumption is made that real estate investments are always reliable and consistent regrettably it is not the scenario. In a number of instances, the real estate property’s value tends to shrink over a period of time.

On top of that, while comparing real estate with mutual funds, an investor mostly fails to consider the effect of inflation which is not in the case of mutual funds. Investment in mutual funds are primarily done to beat the inflation in long run.

The overall returns in real estate investments have been negative since last decade. Many builders in the metro cities have either failed to deliver the property on time or facing back to back legal stays on the construction site which makes real estate investment a liability instead of an asset.

When it comes to returns from real estate vs mutual funds, mutual funds have so far delivered returns of more than 15% and the financial performance of mutual fund portfolio can be easily monitored regularly.   

Expenses involved:

Possessing real estate always requires some additional expenses. Real estate investment attracts higher maintenance cost. If you own a flat or a any rental property, you not only require to pay society maintenance but you also need to pay for regular repair works as well as bear the property tax.

Many problematic tenants leave the flat in complete mess and in many cases the repair work can’t be covered with the security deposit amount. 

When it comes to expenses arising from mutual funds vs real estate, mutual funds require nominal expenses called expense ratio. Stamp duty on mutual funds is also very less as compared to stamp duty on real estate investment.

The average expense ratio charged by Asset Management Companies (AMCs) varies from 0.5% to 1% so when you compare the real estate and mutual fund expenses, mutual funds could be the best choice in terms of saving as compared to real estate investment.

Investment Amount Required:

Investing in real estate requires huge amount of money as compared to mutual fund investments so real estate investment is an expensive affair. An investor not only needs lakhs and crores of rupees to invest in real estate but also needs to bear the burden of loan EMIs.

If an investor wants to purchase even a smallest real estate property in metro cities, he or she may require a minimum investment of Rs. 20 lakhs today.

Many times real estate investors even end up paying huge amount of interests on home loans and get very less returns from real estate investment.

On the contrary, when you decide to invest in mutual funds instead of real estate property, you can start your investment with as low as Rs. 500 per month. Mutual fund investments do not require huge investment amount at all.

Risk associated:

Investing huge sum of money in a single component possesses a high level of risk. If the neighbourhood does not develop according to the investor’s assumptions, it may take years to recover the invested capital.

Another risk associated with investing in real estate is that the asset may remain unoccupied for a long period of time. The fact that there are no tenants to pay the rent means that you have to shoulder the burden of the loan repayment or the maintenance cost, without getting additional income from rent.

To prevent the risk of negative cash flow from real estate investment, an investor requires extensive expertise in managing the financial aspect of the asset. While investing in real estate, an investor should take into account not only expected earnings but also the worst-case situations of a price downtrend. 

The overall revenue generated by the rental property should be greater than the loan repayment amount, society as well as property maintenance charges, property taxes, and other costs involved collectively.

On the other hand, when we check the difference between mutual funds and real estate investment risks, investors can minimize financial risk to a certain degree by diversification in the mutual fund investment portfolio and optimize the mutual fund portfolio by maintaining a proper balance between debt and equity components as well as by rebalancing their mutual fund portfolio regularly.

Which is the better investment option:

Any subsequent real estate purchase apart from your own home can be considered as an investment. But is real estate investment better than mutual funds?

As a result of the country’s rapid urban development, many investors are confident that investing in real estate is lucrative, as they think it is certain that value of the invested property will increase over time.

However, if the historical returns are to be taken seriously, it has been observed that mutual fund investments generate significantly better returns than real estate investments for a goal based investment planning.

Real estate investment has offered roughly 6% to 10% returns over the last decade, but remember, real estate is tough to liquidate or sell, it requires a significant amount of the investment, and it carries a probability of losing invested capital.

When evaluating alternative investment strategies, a significant percentage of investors continue to favour real estate. However, it has become a bad investment over the last few decades, as the overall returns from real estate investments are inconsistent and property values have declined.

But when you make a comparison between real estate and mutual funds, mutual funds have generated higher returns with a low risk profile. As an investor, if you wish to diversify your investment portfolio which can provide optimum returns one can definitely choose mutual funds over real estate investment!

In the long run investment journey, volatility in market subsides and the financial market as a whole increases the overall capital appreciation, further increasing the value of equities. This has a significant impact on the wealth created by mutual funds that invest primarily in equities.

In all of the above-mentioned areas, when you compare between real estate vs mutual funds, mutual fund investment is definitely a better long-term investment option, not just in contrast to real estate investment, but across all other asset classes such as fixed deposits, gold, direct equities etc.

Why invest with Chitale CFS Pvt Ltd:

Chitale CFS Pvt Ltd offers wide variety of investment avenues for short as well as long term investment needs. With more than 30+ years of experience, we are one stop solution for a number of financial products like Mutual Funds, Insurance, Bonds, Fixed Deposits etc. We serve our clients with highest standard of transparency and integrity by putting investor’s interest first.

You can contact us by calling on +91 8999116127 or email us at [email protected] or [email protected] or [email protected]

Mutual fund investments are subject to market risks. Please read the offer document carefully before investing.

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Mutual fund investment is subject to market risk, read scheme related document carefully before investing.