Are investments in Real Estate really safe?

equity

We have heard our elders saying that “Invest in Real estate, the future value of the property will fetch you prosperous wealth.” Is it true?

Let us now discuss how a Real estate as an investment option.
Yes, Investment in Real Estate can generate a regular income, and you can see capital appreciation over a period of time. People think Real estate as an investment option is good only because they look only into the returns ignoring the other factors.

There are other factors that you need to consider:

  1. Risk factor: There is more risk involved if you buy a property, and risk comes in the form of property disputes, your property can be grabbed, finding the tenant becomes difficult.
  2. Additional expenses: Incurring more expenses can affect your returns. Expenses such as brokerage chargers, maintenance costs, taxes will be incurred by you. You will pay all these expenses from your returns.
  3. Low liquidity: In case of emergency, to can’t sell a part of your property and make money and also your need for cash can make you sell the property at a lower price than its original cost. Thus, you incur a loss.
  4. Market fluctuations: Yes, there has been a time where you can sell your property more than 10 times its original value but the things are changed and are not the same.

Reasons why an investor should avoid investing in Real Estate

  • An under performing asset class as it gives more or less the same returns as FDs and offers an annual rent between 2-5% which is very less when compared with the returns earned on FDs
  • The value of a property depends on the geographical location of a property which makes a real asset as an unpredictable asset class.
  • The typical mentality of investors where they link properties to memories and emotions ignoring the returns on investment.
  • Liquidity is less because when you need immediate cash, you can’t find buyers easily and need of cash can make you sell the property at a lower cost than its market value.
    They are subjected to more litigation and the risk involved is high because of property disputes or your
  • property can be grabbed.

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Thus, these are the disadvantages of having investments in Real Estate. But is an alternative? Yes! there are better options to invest such as Mutual Funds. Direct Plans, SIPs, Gold Funds or Equity Mutual Funds help you with wealth creation in the long term. Use “MyWay Wealth” to discover, track and invest in Mutual Funds.

Don’t invest in better, invest in the best!

Debt Mutual Funds Classification

Debt funds classification

Debt mutual fund invests mainly in debt or fixed income securities such as treasury bills, corporate bonds, government securities, and money market instruments that have various time horizons. Investors choose these funds as they are unaffected by market volatility, provide stability to asset portfolio, receive a tax deduction and have high liquidity. The reason behind investing in debt fund is to earn interest income and capital appreciation. Here is the debt mutual fund classification.

Types of debt funds:

1. Short term and Ultra short term debt funds

Wherein these debt funds are invested in instruments with shorter maturities, ranging between 1 to 3 years. Short term funds are for conventional investors where are not affected by the movement in interest rate. Ultra short-term mutual funds are those which invest in fixed-income earning instruments of maturity up to six months.

2. Liquid funds

Liquid funds are being invested in debt instruments with maturity, not more than 91 days. Liquid funds are risk-free funds, liquid funds are better than saving your money in the bank account because rarely they have negative returns.

3. Income funds

Income funds can also take a call on interest rates to invest in debt securities with different maturities, but often income funds are for long term maturities. The average maturity of income funds is around 5-6 years.

4. Dynamic bond funds

Dynamic bond funds keep changing portfolio composition according to changing interest. These bonds have a fluctuating average maturity period because it takes interest call into consideration and invests for longer as well as shorter maturities.

5. Gilt funds

Gilt funds are invested in government securities, where high rated securities with low risk. They provide moderate returns as they invest in an asset with better quality. Though the returns are considerable, they are not fixed as they are subjected to change due to interest rate fluctuations.

6. Fixed maturity plan(FMP)

Fixed maturity plans are closed-ended debt funds. These funds also invest in fixed income securities like corporate bonds and government securities. They are lined with time duration. An investor can only invest in the initial offer period. They are considered the same as a fixed deposit which gives tax benefits but doesn’t guarantee the returns.

7. Credit opportunities plans

These funds are newer debt funds. Unlike other debt funds, credit opportunities fund don’t invest according to debt instruments. These funds earn higher returns by taking a call on credit risks or by holding lower-rated bonds. Credit opportunities are risky than debt funds.

MyWay

To get access to top recommended Debt Mutual Funds, MyWay Wealth is a one-stop destination. From liquid debt funds which are lower risk funds, Gilt- a medium and long term which are government securities, short term – where you can park your money for 1-3 years, Ultra short term wherein you can park your money for 3-6 months, and credit opportunities wherein there are corporate bonds and debenture. All you need is a few minutes to complete your KYC process, input your contribution and you’re all set to invest in MyWay Wealth.

Real estate vs Equity Mutual Fund Investment

Real-estate vs equity

Be aware of little expenses, a small leak will sink a great ship.

-Benjamin Franklin

When you think of investing your money, your parents would suggest investing in gold or real estate. But slowly people are getting to know what equity investment is and they select as a good tool to invest in. Earlier people used to see equity as a risky tool to invest in because they used to consider real estate as a safe investment. But the fact is both investments give a gain in the long term. But nowadays due to the instability in the market, equity is the preferred option.

From decades real estate has generated consistent wealth and long term appreciation.
Investing in stock you can receive ownership in a company. When market conditions are good, you can earn a profit.
A good compromise to choose between investing in the stock market or investing in real estate is in the hands of investors, so be wise when you invest.

Demerits of Real Estate:

  1. Low liquidity: Real estate involves risk because in case of emergency one can’t sell the property immediately. Real estate requires time to liquidate the property.
  2. The market is unpredictable: Market changes every now and then, where you can sell your property more than 10 times its original price. But that could go vise versa also. So think twice when you invest in real estate.
  3. Fear factor: There may be chances of property disputes, your property can be seized, so buying property has a fear factor.
  4. Ancillary expenses: Expenses such as maintenance cost, tax to pay, brokerage charges, and many more have to be paid.

Real estate vs. Mutual funds.

  • The risk:

We all know that both mutual fund and real estate belongs to the growth asset category, and in both risks is involved. The performance highly depends on the economy of the country. Where in comparison with real estate equity funds are less risky because equity mutual funds are diversified in nature. Where if there is a sudden change in the stock market the entire portfolio will not affect. One can switch from one stock to another and can also modify if some of the stocks are not performing well. Where diversification and switching are not possible when it comes to real estate.

  • Unpredictability:

Real estate investments are very unpredictable. We have the wrong notion that real estate is always safe to invest into but sometimes the investor may not get the expected returns as per expected him.

Mutual funds seem risky by nature but that is not true. Because there is the various category you get when you start investing in mutual funds.

  • Tracking investment is not feasible:

Unlike a mutual fund, the investor cannot track their investment in real estate.

In mutual fund tracking investments online could be an option where the growth and decline of the investment could be known by the investor.
In real estate, such tracking is not possible. This creates a risk in investment as the investor cannot track the investment.

  • Real estate needs large funds:

Real estate requires an investment of large amounts.

Where one can start with the SIP option while he is investing in mutual funds.

  • Compounding power:

In mutual funds, you have the benefit of compounding. Where this gives very good returns to the investor.

The benefit of the compounding effect will not be there if they invest in real estate. Even today real estate is considered by people as a symbol of security. And this could be debatable. As the above points suggest, that mutual funds are a better option if you consider diversifying your portfolio.

MyWay screen shot

When one invests into equity mutual fund they do get benefits to tax efficient as compared to other investment types. Investing in a mutual fund required a very small amount of money. Where in the SIP plan, money gets automated debit from ones account. As all mutual fund companies come under SEBI, the investment made in a mutual fund is safe and transparent.

Start investment into Equity Mutual funds, where MyWay Wealth is the best platform to invest your funds.

Think investment!! Think MyWay Wealth.

real-estate

Real Estate vs Mutual Funds

“Put your money in land, because they aren’t making any more of it.”

-Will Rogers

A famous quote that many people believed in. People could not stop bragging enough of how their land and houses which cost peanuts before, were worth so much in a few decades. We’ve all heard the stories and rantings, but is it really true? Mr. Will Rogers, the famous American actor, made this quote in April 1930; over 80 years back! Since then there was a World War, India gained independence from the British and went through fourteen Presidents. How relevant are his words in our present scenario?

Most of us are familiar with the past stories of real estate; how a piece of land in the 60’s cost peanuts and is now worth a thousand times more but is that the story? Real Estate is still considered one of the greatest investments because it provides several tax incentives, it can be financed or used to leverage for cash when needed. But that’s not all that it has, let’s look at the other side of it.

The value of real-estate is clearly unpredictable; the property you buy today may be worth 10 times more or completely worthless years from now. There is a tremendous amount of time and energy that you spent on real estate with payment of taxes and utility bills, keeping it in good condition and also selecting new tenants as and when needed.

It allows the investor to gain value through modifications, but such value add-ons do not guarantee you anything in return. The everyday news carries dispute cases that have been under litigation for years for fraud, title, contract breach, etc. It can be used as leverage for cash, but when looking to sell it, it is difficult to find a buyer and the urgency of the situation may lead you to sell at a much lower value.

Still, do you want to put your investment in Real Estate? Let’s look at the current market. The total demand for urban real estate is estimated at 4.2 million units during the period 2016-2020 across the top cities in India. Sounds great right? But know this too, over 4.5 lakh homes remain unsold in the cities of Gurgaon, Noida, Mumbai, Kolkata, Pune, Hyderabad, Bengaluru and Chennai, despite the huge demand in the market. The homes are either priced higher or are not placed in a good location. Considering all of this, real estate is not the best investment.

But how about Mutual Funds?

This is a vehicle to invest in diversified avenues of investment. It has the added benefit of cover from inflation in the market, and the premise of diversification there is much less to worry about. Mutual Funds has a range of funds that cater to the investor’s return and risk appetite which is professionally maintained by the fund manager. It provides various tax benefits and has high liquidity. Moreover, the number of AMCs have doubled over the past 3 years or so, and according to Association of Mutual Funds in India (AMFI), over 70,000 new distributors have started to offer mutual funds over the recent years. Now that is a market worth investing in!

If rewards are the cheese and you are the mouse looking for it then Real Estate is the trap that promises you the tasty treat that tricks you to an investment that is ultimately a liability. The pain of dealing with realtors, settling legal disputes, having to put all your money with no immediate benefit is not what you need from an investment. 

Don’t invest in better, invest in the best!

investment

The Portion of Debt in your Investment Basket

Did you know that even as a kid in school we had a portfolio of investments? We’d divide our pocket money to get our candy and our favorite cake, sometimes we would have small savings to buy those shoes, or even loan it to a friend for a while. So as we grow our portfolio becomes bigger in terms of scale and range of investments. We focus more on security and future. But how much of our total portfolio should go into these channels? Why do we have to have debt instruments?  Diversification was the first rule learned in investing. The story of when we put all our eggs in one basket and it all breaks when the basket falls down, is familiar to all investors. But perhaps you never got to the part of hstow many eggs and in which basket should we put it in. 

Debt is the basket which offers you security. But the word itself doesn’t give a ring of security because it is often associated with words like ‘loans’. In truth, however, it is essential for every person to invest in some debt instrument in his lifetime. The different products include Public Provident Fund, Fixed Deposit, Bonds, etc.

So when it comes to giving a slice of your portfolio towards debt instruments here are a few things to keep in mind:

  1. The choice of the debt instrument is vital. So ask yourself what do you want it to do? The answer should either be to providing money on short notice or provide stability to long-term investments, both of which is given by debt instruments.
  2. Focus on just the top debt instruments and leave the rest. If you try to pick too many of debt funds you tend to have a mediocre investment which gives high safety but low returns. Don’t try segregating eggs in that debt basket so much.
  3. The allocation of your investment in Debt instruments should be in proportion to your age. The younger you are, the better it would be to invest in growth-based schemes(equity). When you get older you must focus more on stability(debt).

When it comes to Provident Fund or Pension Fund, that are retirement schemes by the Government of India, its sole purpose is to set aside money from a person, preferably during his employment and return it back in a lump sum along with a small amount of interest.

The Public Provident Fund is one of the kinds of PF accounts for any individual at any age, even for an infant. The greatest benefit of this is the returns which are completely tax-free. The account stands as your loan to the Government at the advantage of receiving a tiny amount of risk. It allows you to invest a minimum of Rs.500 to a maximum of Rs.1.5 lakh per year so as to ensure the account remains active for the lock-in period of 15 years. The PF or Pension Funds are to safeguard your lifestyle after retirement, but they are not the only debt instruments you can rely on. Read more about PPF on the MyWay Wealth website.

A Fixed Deposit is a popular stowaway for your money which saves upon a fixed rate of return during its term. It is applicable for tax and is affected by inflation in the market. It is suitable to use as an emergency fund. Suppose you have a wedding to host or pay for your parent’s medical bills it can be immediately withdrawn to meet those expenses at a reasonable penalty. Whereas, as an investment, it is not a suitable option as it guarantees neither safety nor growth. To know more read the article at MyWay Wealth’s Blog about Fixed Deposits.

It’s quite a dilemma, isn’t it? The PF or PPF is an important long-term savings scheme for a retirement corpus. However, as mentioned before if the expectation from your debt basket is to help in cases of emergencies a Fixed Deposit would work much better. The PF focuses to help you in the long term and the FD will be more reliable as an emergency cell. Click here to know more on that.

Wouldn’t it be great to have one that serves as both in the long-term and act as an emergency fund? In uh a case Mutual Funds are the way to go! Specifically, the Debt Funds in the Portfolio that invest mainly in bonds, giving you security, relatively higher returns, and high liquidity.

Real Estate

Investments in Real Estate, not very Realistic

Home Sweet Home. It’s such a secured feeling to own land and have your property on it. The pride is immense and overwhelming.

Brokers also use these emotional flavours to sell properties. The ease with which one gets a loan these days has lead the masses to invest in real estate easily, but not wisely!!

We have heard our elders say, “Invest in real estate, the future value of the property will earn you a fortune”.

Is this really true?

Here are 6 reasons not to invest in Real Estate.

  1. Low Liquidity:

We buy property with the hope to sell it at a higher cost. But what if an emergency arises and we want liquid cash immediately. Remember your urgency in selling a property is a treat to a potential buyer. Because, your dire need for cash would lead you in selling your property at a lower price than its true value.

  1. Low returns

Most real estate investments fetch you the same amount of return as that of Fixed Deposits. Lines from Nishant Agarwal (managing partner and head (family office), ASK Wealth Advisors )“Considering the rising interest rates and high maintenance cost and tax on rentals and capital gains, I would not suggest investment in physical real estate”.There is no guarantee that you would find occupancy if you are depending on getting income in terms of rent.

Which means, it’s obvious you’re not getting index-beating returns..

  1. Unpredictable

I remember my dad saying  “20 years before if I had bought this house in Kammanhalli, I would have been a crorepati today”. Why?

Because rates increase in real estate depending on the property’s location not on how much you spend on the house, or how does the property look, which makes real estate an unpredictable asset class.

  1. Tracking is a pain.

Mutual Funds are managed by Professional Fund Managers, you have apps to give you alerts, even if you owned more than one scheme.

But how would you track real estate? How do you know that the broker dealing with the property is not a fraud? How would you track your property? You can’t track it daily, can you?

  1. Government Regulation

But the recent disruption announced by our Prime Minister, through “Demonetisation” has curbed the circulation of Black Money by stripping the status of our currency unit.

People don’t even let properties on lease these days, then forget buying a property. Thus reducing the demand of real estate in the market.

  1. Additional expenses.

You need to shell out a bomb to buy a property. Many opt for loans. But in addition, there are other expenses that come along with a property:

  • Maintenance charges
  • Finding a tenant
  • Commission to brokers
  • Utility Bills
  • Taxes

This is exhaustive both financially and physically.

The next time you want to Invest in Real Estate, Think!!

There are better options to invest such as  Mutual Funds. Direct Plans, SIPs, Gold Funds or Equity Mutual Funds help you with wealth creation in the long term. Use “MyWay Wealth” to discover, track and invest in Mutual Funds.

Debt

The Debt Story

Parents always warn us not to be in Debt. “Better to go Hungry to bed than to wake up in Debt” is what our dads would say in a stern tone. But why?
It has a simple reason! The word Debt is often referred to as borrowings such as a car loan, home loan or credit card loans. It reminds of the hunting calls from the credit card companies.
But, these are conventional thoughts.

As for the newer ideology… DEBT means products with “ RETURNS”.

The usual feeling that comes with “Investing” is “Fear”. They are normally two sides of the same coin, to most investors. But like Warren Buffett says
“Risk comes from not knowing what you’re doing.”
Knowledge is what you require to make your first move in investing in Debt Instruments. The finance part, you will eventually figure it out once you are familiar with Debt and stop fearing it.

Here are few Debt Instruments and also a set of alternatives that will help you in your course of investing:

1.Savings Bank Account: Savings account is a necessity, not an instrument anymore. They encourage savings, are highly safe with their moderate interest rates and are flexible when it comes to withdrawing your money when you need it.

2. Bank Fixed Deposit: These are the most trusted funds because they give moderate yet periodic returns with Average interest rate of 4%-7 %. You get your principal amount back once your term is over. All this with zero risks. This fund is essentially useful when you want to park your money aside for an Emergency. One of the easiest ways to invest is to opt for smaller Fixed Deposits so that you don’t lose the entire interest on your deposit when you have to break it for an Emergency.

3.Provident Funds: If you are employed then Provident fund is your pie. Provident fund is the accumulated amount one gets on retiring from his/her job. The accumulated amount is the contributions one makes during the employment period.

Public Provident Fund: This instrument is provided by the Central Government to employees who are self-employed and those at the unorganized sector. These are long term savings scheme that provides income security at your old age. This investment is famous for guaranteed returns, tax benefits, withdrawals after lock-in periods and is voluntary. Both Provident Funds and Public Provident Funds are definite items in your investment list as they secure your life after retirement.

4.Recurring Deposit: When you hear Recurring Deposit, remember SAVINGS. Recurring Deposit is quite similar to fixed Deposits. The difference is that in the recurring deposit you deposit a fixed sum every month in a recurring deposit account for a fixed tenure and you earn interest on these deposits, thereby you practice the habit of saving.

Warning Bell: The usual jazz that brokers give when they sell schemes is “Higher Returns”. Ever wondered how, say, for example, Real Estate manages to provide high-interest rate. The trick is, Higher Returns is a sugar coating for the Hidden Risks. An easy thumb rule is to keep the Interest on Bank FD as your benchmark. Any scheme providing an Interest rate higher than that a Bank FD, will have the factor of higher Risk. However, there is a way to earn higher returns with Debt too with the help of Debt Mutual Funds.