ATM :: Where should I invest my money: Real estate or equity?

ANKUR KAPUR Co- Founder, Finqa.|May 07, 2014, 05.58 PM IST | Source:


Lot of people believe that investing in a fixed deposit does not carry any risk. If fixed deposit is offering you 8% p.a. rate of return and inflation is 9% p.a., you destroy your wealth by 1%. In a fixed deposit, the capital is not protected against the fall of value in real terms. Therefore, you must have a mix of assets so that your portfolio can grow on an inflation adjusted basis. That is why investing in growth assets is critical to any portfolio. Real estate and equity both are growth assets i.e. both the assets will deliver returns better than the inflation over a long period of time.

Real estate prices did not rise from 1994 to 2002, but provided phenomenal returns from 2002-07. Strong economic growth and urbanization supported house prices. However, in the last 3 to 4 years, real estate market in India has gone down and people, who have invested in it around 2008, are struggling to get their principal back.

One major mistake that everyone commits while calculating return for the real estate is that they calculate absolute returns rather than annual return. Below mentioned is the performance of Nifty, equity based mutual fund and real estate index for the recent past. This time period is considered to be one of the worst for both real estate and equity, but let’s look at the performance of equity and real estate.

Year Nifty Leading Mutual Fund (Equity) RESIDEX Index – Delhi (NHB)
2009 76% 91% -13%
2010 18% 27% 9%
2011 -25% -16% 36%
2012 28% 27% 17%
2013 7% 10% 1%

Just by looking at the chart we can see that equity has performed way better than real estate even in the recent past. Therefore, investing all your money in a real estate is definitely not a good idea. You should have a mix of assets in your portfolio which will include real estate, equity, gold and debt. The mix of assets would vary from person to person depending upon individual’s investment needs and risk profile. However, even if you have aggressive risk profile with a time horizon of more than 5 years, you should not make investment in real estate more than 20% of your overall investment portfolio.

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