Investing in Real Estate vs Mutual Funds – Which one is better option?

investing in real estate vs mutual funds

During turbulent times like today, it is crucial to work on your finances. Do not let your money sit in a corner. Invest your hard-earned money into different investment opportunities in Pakistan and let your cash grow. No doubt, investment is important for financial stability.

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Today, there are many business ideas in Pakistan with small investments, each having their pros and cons. Two of the best investment options in Pakistan are mutual funds and real estate. Both of these options are secure and yield incredible gains. To get a detail over view about real estate trends read top real estate YouTube channels.

However, we have come across a great number of people who are confused between mutual funds and real estate investment. Both options look equally lucrative and profitable at first glance but in reality, each has its pros and cons.

In this article, we bring you a thorough and in-depth analysis of both investment opportunities, so that you can make a better and well-informed investment decision.

Real Estate vs Mutual Funds – Which is the Better Investment Option?

Real estate is property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature; an interest vested in this an item of real property, buildings, or housing in general.

On the other hand,

Mutual fund investment is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets.

Factors Differentiating Real Estate from Mutual Funds

Let’s see how both of these options differ from one another.

    1. Consistency
    2. Performance
    3. Legal Framework
    4. Monitoring Power
    5. Returns
    6. Taxation
    7. Liquidity
    8. Ease of Investing
    9. Usability
    10. Maintenance Cost

investment in real estate vs mutual funds


1. Consistency

One of the most crucial factors that every investor should keep in mind at all times is consistency. By consistency, we mean the rate at which the investment will improve over time. It is a common observation that real estate investment always improves over time. 

It is safe to say that real estate prices appreciate over time. However, one important aspect that you should consider is the development rate in the area. Always invest in projects that are developing or soon to be developed. 

Contrarily, mutual funds work a bit differently than real estate. The stock market is highly volatile and you cannot easily predict the growth rate of your mutual funds. Normally, mutual funds are consistent and provide good returns. However, there is also a risk factor attached to them. 

To mitigate the risk, try to invest in stocks that come with moderate risk. In this way, you will not lose your hard-earned money. 

2. Performance

By performance, we mean how well the investment is doing in its respective market. In Pakistan, the real estate market is improving by leaps and bounds. Local and foreign investors are now investing their money in different development projects across Pakistan. 

Similarly, mutual fund investment is also gaining popularity in Pakistan. Due to fewer capital requirements, mutual funds are still one of the most favorite investment options for Pakistanis. The power of compounding in mutual funds helps generate higher returns.

Every investor wants to invest in something that comes with easy terms and conditions and most importantly, with less legal troubles. The last thing you would want would be a legal dispute. 

Legal disputes are time-consuming, expensive, and may tarnish your image forever. Therefore, before investing in any sort of investment, do your due diligence and make sure that you are putting your money in the right place. 

If you are investing in real estate, you may have to go through many legal frameworks because, at the end of the day, you are getting a tangible asset, and authorities have to make sure that the whole process is clear and transparent. 

Also, due to scams in real estate, take your time, and go through paperwork before making any investment. 

On the other hand, mutual funds are regulated by the government and controlled by the securities exchange board. That means you do not have to worry about legality. 

real estate vs mutual funds

4. Monitoring Power

In the past, people used to consider real estate investment as a risky option. But with time, the monitoring power of real estate has increased. Now the government and regulatory bodies are keeping an eye on every development project in the country. From performance to prices to terms & conditions, everything is being closely monitored. As a result, the cases of fake housing societies have gradually decreased. 

Similarly, mutual funds come with good monitoring. You not only see your performance through the stock exchange but you can always check your mutual funds status online. Thanks to science and technology, the tracking system has become very easy and convenient. 

5. Returns

A good investment opportunity always comes with great returns. That’s the easiest way to spot a good investment opportunity. 

In the case of real estate, you need a fair amount of capital to start your investment. However, you should also know that real estate generates incredible gains. for example, offers up to estimated annual gain on their real estate investment projects developed by the top construction company.

On the other hand, mutual funds require less capital. You can even purchase mutual funds with mere Rs.5000. However, as compared to real estate, mutual funds generate fewer returns and the ratio of returns may vary with time. 

6. Taxation

Every investment opportunity comes with some taxes. However, luckily, both real estate and mutual funds also come with tax relaxations. 

Real estate investments can help you save on taxes but through indexation. Indexation helps in lowering your taxes by considering the impact of inflation on the real estate value of your property. Get to know the tax on property in Pakistan. In short, to maintain the purchasing power of the public after inflation, indexation is introduced by the government.

Similarly, mutual fund investors also receive certain tax benefits from the government. The primary objective of these tax exemptions is to ensure foreign and local investment.

invest in real estate

7. Liquidity

Liquidity means the ease of converting your asset or investment into hard cash. The sooner investors can liquidate their funds and investments, the better.

In the case of real estate, you will encounter moderate liquidity because sometimes properties require some time to sell. So, if you are someone who may need urgent cash, real estate investment might not work for you. 

In the case of mutual funds, the liquidity is also moderate but it is relatively better than real estate. Mutual funds, however, allow you to liquidate your funds and sell them through an online market whenever they need funds. 

8. Ease of Investing

In the case of real estate investing, there is a lot of paperwork, research, inspections, legal issues, and vice versa. You need to consider all these things before securing and finalizing your real estate investment. But the good thing is that even if the process is lengthy and tedious, at the end of the day you will get a tangible asset, and you will have full ownership and control over it. So, every bit of effort will be counted. 

In the case of mutual funds, the process is fairly simple. You can either hire a broker or you can start online mutual funds. The process is very simple, convenient, and manageable.

9. Usability

Real estate comes with multiple benefits and usage. You can rent out your house, resell it, use it for personal residence and you can even use it for bed & breakfast services and so on. In short, real estate is a jackpot for many for sure.

One of the most debatable discussions in the real estate market is: should we build our own house or purchase an already existing house?

On the other hand, the usability of mutual funds is low as compared to real estate. You cannot do much with your mutual funds in Pakistan. You can either buy them, sell them, or trade them. 

10. Maintenance Cost

Real estate comes with the maintenance cost. When you own an asset you need to take care of it so that its market value stays intact. For example, if you own a house, you will be needing money for house maintenance, renovations, security, minute damages, and vice versa. 

All these maintenance costs might pill up and become a trouble for you. 

On the other hand, mutual funds do not come with high maintenance costs. You can use online software to track the performance of your mutual funds and if you have hired a broker to do the trading for you, you will have to pay for him. 

Which Investment Option is Better?

The real question is: which investment avenue is better for you? Well, there is no straight yes or no for it. The answer may vary from person to person according to their personal preference and requirements. 

However, we do hope that this article cleared up your concepts regarding real estate and mutual funds. We hope this analysis will help you make a better and well-informed decision in the future.

Despite the growing economic importance that the real estate sector has attributed to the development of the economy, the true potential of the industry remained concealed in Pakistan.

If you still have questions in your mind, do not hesitate to contact us. We will be more than happy to answer any questions.

Happy investing!

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