Difference between Real Estate vs Mutual Funds
- 17th September 2025
- 11:00:00 AM
- 8 min read
In FY25, about 5.5 crore new folios of mutual funds were added in India, bringing the total folio count to 23.24 crore. On the other hand, investments in real estate are also increasing due to its potential growth rate.
As an investor, you may be looking for an investment vehicle between real estate vs mutual funds, suiting your financial goals.
This blog discusses how the two types of investment options generate returns, their inherent risks, and other factors in detail.
Understanding Mutual Funds
If you are new to investments, you might wonder how a mutual fund works. Mutual fund houses gather or pool money from multiple investors and invest it in underlying assets such as stocks, bonds, commodities, money market, etc.
To better understand how mutual funds work, and to lay out the differences between real estate vs mutual funds, take a look at the following section:
- When you buy units of a mutual fund, the value of the units goes up or down based on the performance of the underlying assets.
- Suppose you invest INR 10,000 to buy 200 units of a fund at an NAV of INR 50. If the shares of the fund rise and push the NAV from INR 50 to INR 60, the value of those 200 units grows to INR 12,000.
- Experienced fund managers take care of purchases or sales of those underlying assets to ensure you get an optimised return.
Some Key Features of a Mutual Fund Investment
In June 2025 alone, the mutual fund market in India has seen a notable expansion with 4 lakh new mutual fund investors. The following exclusive features of a mutual fund investment are behind such growth and set a clear distinction between real estate vs mutual funds:
- Based on structures, there are both open-ended and closed-ended mutual funds. For most open-ended funds, there is no lock-in period, ensuring high liquidity. However, for closed-ended funds, a typical lock-in of 3 years applies.
- If you are confused about investing in land vs mutual funds, investing in a mutual fund is easier. You can invest online via an AMC, a broker or via a fund distributor.
- You can invest in a lump sum or a Systematic Investment Plan (SIP), based on your investment goal.
With PL Capital Group – Prabhudas Lilladher, you can easily start a mutual fund investment online. Download the PL Capital app, fulfil an e-KYC and start your investments today!
An Overview of Real Estate Investments
While deciding before investing in mutual funds vs real estate, you must learn the different aspects of real estate investments as well.
Here is a clear breakdown of real estate investments for an easier understanding:
- Suppose you buy an acre of residential land in an urban area of India or a house, apartment, commercial space, etc. Such an investment is referred to as a real estate investment.
- The real estate sector in India is on a growth path, and it is poised to grow at a 24.25% CAGR until 2030. This shows that there is growth potential and evolving opportunities that fuel the increasing demand for real estate.
- However, making a profitable investment decision in real estate depends on factors such as location, development initiatives, property type, etc.
Key Features of Investing in Real Estate in India
Setting a clear comparison between real estate vs mutual funds requires an understanding of the exclusive features of real estate.
Real estate investment costs depend on location, demand for properties and might generate profitable returns if property prices go up and include other features:
- Real estate investments provide you with tangible assets, unlike stocks, bonds, etc, whose value might rise with time. Also, the location and use cases of the properties determine their value.
- In 2025, residential land in cities costs up to INR 2 crore. With prices expected to rise by 7.5% next year, buying now can let you earn a profit on selling later.
- In 2025, rental yield in India increased from 4.84% (as of 2024) to up to 5.5%. Thus, by selling your property, you can generate a passive income stream by investing in real estate.
Difference between Real Estate vs Mutual Funds
Depending on asset type, investment capital, liquidity and other important factors, here are 5 key differences between mutual funds and real estate investments:
| Parameters | Mutual Funds | Real estate |
| Type of assets to invest | When you buy units of a mutual fund, it gets allocated to intangible assets like stocks, bonds, etc. | You can buy tangible assets, like a house, apartment, agricultural, commercial or residential land. |
| Initial investments | You can start a mutual fund investment in SIP or a lump sum. You can start an SIP at only INR 500 and a lump sum between INR 100 and INR 5000. | A high initial investment is required here. For example, you must pay a high lump sum amount as a down payment and registration price, stamp duty costs, etc. |
| Liquidity | For closed-ended funds with a 3-year lock-in period, you can withdraw funds. For open-ended funds, you can withdraw funds anytime. | Liquidity from real estate investments is comparatively hard. It takes both time and effort to find a buyer and sell properties at your preferred price. |
| Portfolio diversification | In FY25, the energy sector mutual funds delivered a 56% return. Thus, you can invest a portion of your fund in the power sector and the rest in equity funds from other sectors, bond funds, etc. | The probability of diversification is low in real estate, as you can only invest in properties. |
| Investment risks | Such an investment option, especially those that are equity-oriented, is much exposed to market risks. Also, bond funds have interest rate risks. | Due to a sluggish market, real estate prices can go down. There are risks of legal disputes, property damage, etc. |
Things to Consider to Choose between Real Estate vs Mutual Funds
- Assess your financial goal for better investment decisions. A mutual fund investment suits you if you are looking for potential long-term growth. However, if you need property appreciation, rental income, and related wealth generation sources, choose real estate.
- Real estate requires effort, time, and money for property management, tenant dealing, repairs, etc. With a mutual fund investment, a fund manager oversees your investments, providing you with a more hands-off approach.
- You must consider liquidity, especially in any emergency. With a mutual fund investment, you have quick access to funds by withdrawing them by paying an exit load of 0.5% or 2% of the NAV. However, liquidating your real estate investment is harder.
- You must also consider your risk tolerance level. At a low to high risk level, choose a debt or hybrid fund. Opt for an equity fund or real estate with a higher risk level.
Conclusion
You can be confused between real estate vs mutual funds and wonder which one is better. You can easily start a mutual fund investment with an affordable SIP or lump sum amount. Depending on your risk tolerance, you can choose an equity or debt fund. A real estate investment requires a high investment that might generate capital appreciation over time.
With PL, you can start investing in stocks, mutual funds, and more. Download the PL Capital app today and start investing!
Frequently Asked Questions
1. Is real estate safer than mutual funds for long-term investment?
If you are seeking portfolio diversification, liquidity, and professional management, go for a mutual fund. However, if you need a tangible asset with regular income and capital appreciation over time, you can opt for a real estate investment.
2. What are the risks involved in real estate vs mutual fund investments?
With mutual funds, there are market risks due to market fluctuations. However, diversification or opting for a debt-oriented fund can lower the risks. In real estate, risks appear from changes in market demand, tenant vacancy, damage, legal issues, etc.
3. Which offers better returns: real estate or mutual funds?
With a long-term investment horizon, you might make a profit from a mutual fund investment. On the other hand, you can generate a passive income source from rental income and even sell your property if its value rises.
4. How does liquidity compare between real estate and mutual funds?
Most closed-ended funds come with a lock-in period of 3 years, and open-ended funds allow you to withdraw anytime. However, for real estate, looking for a buyer, setting an amount for the sale, legal paperwork, etc., consumes a much higher amount of time.
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Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.
