Mutual Funds vs REITs: Which is better for investment purposes?

What are Mutual Funds (MFs)

Mutual funds raise money from different investors to invest in stocks, bonds, and other assets.

What are (REITs)

Real estate trusts (REITs) are companies that own and manage real estate assets such as stores, buildings, or hotels without owning them.

MFs vs REITs

Subhash Goel, MD, Goel Ganga Developments, says the main difference between cash and real estate is the type of assets they invest in.

This increases the Mutual Funds but compared to the return angle the property is better, he added.

According to the research of the National Association of Real Estate investment trust (NAREIT). The property has increased its return from 16.5 percent in 2000 to 39.9 percent in 2021 while different funds will return from 12 high to 15 percent in the past years.

Is investing in real estate a wise choice?

Security of invested money is the main concern of all investors.

In that case, equity mutual funds aim to maximize returns by reducing risk. So fund managers managing Mutual Funds don’t want to put your money at risk by focusing on one share. Mutual Funds create a portfolio of mutual funds of different companies. Therefore, although there is a certain amount of risk, in the long run it will be reduced by a lot, said Siddharth Maurya, Resource Specialist, Expertise Real-Estate and Fund Management.

On the other hand, REIT investments can be particularly vulnerable during economic downturns. The greater the risk, the lower the value of the property than the appreciation, explains Malhotra.

To conclude, in the case of Mutual Funds, risks are reduced in the long run, but REIT investments come without such guarantees.

The difference between REITs and mutual funds

According to Ankit Aggarwal, MD, Devika Group, REITs are like mutual funds. The main difference is the minimum investment in REITs and Mutual funds. Another difference between REITs and mutual funds is that REIT investments are listed on the stock market and one can invest in REITs only through Demat stock, however, it can some invest offline/online through their website. Investments can be made through exchange rates, however, there is liquidity risk in currency transactions. REITs mainly invest in real estate only. Outside of real estate, ~80% of rent is done in rental properties. The remaining 20% ​​of investments are made in properties under construction. In that sense, Mutual Fund investments are very liquid. Its shares can be repurchased at any time with the click of a few buttons and the money is deposited in the designated bank account within two to three business days.

Tax exemption on REITs and mutual funds

REITs and similar investments give you tax breaks. However, the investment mix with these funds is seen as tax saving among most investors, says Suren Goyal, Partner, RPS Group.

Under Section 80C of the Income Tax Act, 1961, you can claim tax benefits up to a maximum limit. ₹1,50,000 on investments made in mutual funds. This allows investors to save on taxes.

“REITs can help you save on taxes but through indexation. Indexation helps lower your taxes by taking into account the effect of increasing the real estate value of your property. Give REITs typically issue shares to investors and are required by law to pay at least 90% of their taxable income to shareholders.However, the tax rates offered in the wealth before the bank,” said Suren Goyal.

Mutual fund investments generate higher returns over time. Depending on the power of mixing your money,

Overall, the choice between investing in REITs or mutual funds depends largely on an individual’s investment goals, risk tolerance, and personal preferences.