Property, Equity or Gold, Think Before You Invest
November 30th, 2017
No investment is risk free. When people invest their hard-earned money anywhere, they do understand that there are some risks involved of various magnitudes. However, the main objective behind investments is always to get the best possible returns out of it.
When people invest a small amount of money, say ten thousand or twenty thousand or even a of lakh rupee, the choice becomes quite simple—it is either fixed deposits or small amounts in mutual funds. But when it comes to big money, what are the investment options?
Few noteworthy options are:
It must be noted that the returns on investment you are making vastly depends on the risk appetite.
Now let’s take an example. Way back in the mid-90s, gold was available at an approximate value of INR 500 per gram. Suppose, back in the 90s, you wanted to invest bulk amount in gold and hence purchased 500 gms of gold, you’d have safely blocked an investment amount of approximately INR 2.5 lakhs. Even though volatile, gold still had investment value back then. In 2017, gold is valued at a staggering INR 3,000 per gram approximately, which means to own 500 grams of gold today you’d have to invest INR 15 lakhs. But much to the irritation of investors, gold’s rate keeps fluctuating constantly. Therefore, if the amount you are investing is small you can safely invest in gold, but if you are talking big money then think twice about it.
Even though long-term investment in gold has given high dividends and good mortgage loans are available against gold, the process of buying and selling gold is not very transparent. Moreover, investing in gold gives you no tax benefits at all. Add to that that there are no regular dividend earnings from gold unlike other investments, and its storage and maintenance is quite troublesome too.
One of the biggest drawbacks for equity is it is highly volatile in nature which puts it at high risk levels. Even though you can reduce and diversify your risk by investing in various avenues, since the investment channel is volatile, the risk of losing big money will always remain.
The best part about equity is that you can start investing with as low as INR 1,000 for mutual funds, and that the money is handled by professional fund managers who know where to invest at minimum risk. You also have long-term capital gains and good post-tax returns.
If you look at the graph above, in the year 2015 the investment focus was purely on real estate. This clearly shows that investment in real estate is way ahead of other sectors. Even though property investment has its own set of challenges, it is still considered as one of the most profitable channels. Volatility of real estate is extremely low and the market rate has always been stable compared to other sectors. If you rent out your property you can get a steady income, and at any given point you can mortgage this valuable asset for a sizeable mortgage amount.
However, just like any other investment even real estate has its own shortcomings. Apart from the actual cost of the property, you need to pay extra for stamp duty, registration, and other mandatory charges. There will always be a cost of maintenance, which will also add up to the total cost of the property when you plan to resell it. And not to forget that selling a property instantly is a challenge in itself.