Real Estate vs Equity Investment

REAL ESTATE

EQUITY INVESTMENT

Returns

The average return of Equity in India is 14%. Rs 20 lakh invested in HDFC Flexi cap fund in year 2002 at an average NAV of Rs 21 is worth Rs 10.50 crores today with an NAV of 1100 which is a compounding return of 22% per annum.

Cost involved in buying and selling

You have to bear expenses like stamp duty, registration cost, society charges & maintenance as well as brokerage while buying or selling a property and these expenses are heavy.

No major expenses are involved in transacting in Equity shares or Mutual Funds.

Market Conditions

The house will get old over a period of time. The new developments will have better modern amenities both indoor and outdoor, so you have to try hard to find the suitable buyer or compromise on the selling price.

Exposed to market risk & volatility, but usually generates higher returns over the long term than real estate. However, misleading market trends often make investors take impulsive buying and selling decisions.

Liquidity

Highly illiquid - One cannot take money out easily. It isn't feasible to sell the property right away. The individual will have to wait for the right market condition and then find the best buyer to get the profits desired.

High liquidity - an individual can sell their stock or mutual fund investments on a click of a button irrespective of investment value.

Diversification

There is no scope of diversification. A substantial amount of money will have to be invested in a lump sum or instalments for under construction property.

You can diversify your investments even with smaller amounts. One can park money in stocks of different companies, industries and sectors via equity mutual funds.

Ownership

Sole ownership or joint ownership of property be it residential, commercial or vacant land. You have the right to manage, rent or sell the property.

Proportionate ownership of a company or a fund as per the capital invested by you. You do not have rights to manage or sell the company or fund but you can sell your share of ownership any time in the market. The company or fund is managed by highly competent and professional management.

Taxation

The Long-Term Capital Gain on Real Estate is 20% plus cess with indexation benefits after 2 years of holding period.

The Long-Term Capital Gain on Equity MF and Shares is 10% plus cess.