The debate of whether you should invest in real estate or in a fixed deposit has been an ongoing one. Investments are made with the motive to maximise your overall gains. Real estate and fixed deposits (FDs) have been the most sought after forms of investment that each have their own perks. A complete understanding of what each of these have to offer will help you decide what’s the best kind of investment for you.
Whether it is investing in real estate or booking an FD, a number of factors need to be looked into. An analysis of these factors will help you weigh the pros and cons of each form of investment and arrive at a conclusion.
Here are some of the factors that you should consider before making a decision of where to invest:
Rate of return: Fluctuations in the market do not affect fixed deposits as a result of which the rate of interest that you are initially promised remains unaffected. By using an FD calculator online you can get an estimate of the amount you will receive at maturity. Real estate does not necessarily guarantee returns since changes in the market play a crucial role in deciding the value of real estate.
Risk appetite: An FD is a low risk investment that will help you gain assured returns regardless of any market-linked fluctuations. You can easily use an FD calculator online and derive estimated values of your interest return at maturity. Real estate involves higher risk since it depends on market values which is why the value of real estate will consequently decline when the market is affected by changes.
Reliability: In case of any exigencies you can always liquidate your FD by opting for a loan against FD or prematurely withdrawing it. In the case of real estate, you can opt to sell your property and liquidate your assets. However, selling it when the market value is lower can lead to losses. Furthermore, FDs can be relied on due to the ratings given by professional credit rating agencies such as CRISIL and ICRA.
Affordability: You can book an FD with a deposit amount as low as ₹1,000 which makes FD an affordable investment option. On the other hand, real estate prices have skyrocketed over time and are still on the rise.
Profit: FDs offer guaranteed returns that are independent of market-related changes. Since your returns through an FD are certain, you will be able to diversify your investment portfolio. Real estate is a high profit investment that can help you gain immense wealth if you play your cards right. Investing in real estate gives you major scope to earn profit.
Additional expenses: You need not incur any additional expenses while you book an FD. Whereas, real estate involves additional expenses such as repair cost, maintenance, construction renovation charges, registration and so on. With an FD you need not worry about having to pay any additional charges.
Transparency: There is a sense of transparency between the FD provider and you regarding the type of FD you choose, the frequency at which you would want to receive your interest payouts and the duration for which you decide to invest in. Additionally, you can use an FD calculator online to get a clear idea of the parameters that are considered to calculate your returns at maturity. Real estate dealings do not always provide you with transparency since you might end up purchasing a property that has flaws you weren’t briefed about.
Income: FDs are a great way to pool your funds and save up for the future. You can choose to book a non-cumulative FD and receive your interest returns at regular intervals to meet your expenses. Similarly, you can rent your property out and earn income on a monthly basis. This will also help you build a secure channel of income over time.
Procedure: The procedure for booking an FD is quite simple and hassle free. All you need to do is opt for an FD provider and you will be able to book an FD from the comfort of your home. Whereas investing in real estate requires you to invest a lot of your time on studying the property you intend on buying. Additionally, you would have to reach out to a qualified specialist to get an opinion on whether the property is worth the money you’re spending.
Taxation: You are liable to pay tax on the interest amount earned through an FD. If the interest you earn exceeds ₹40,000 (₹50,000 for senior citizens) a year, you would have to pay tax of 10% and above. In case you take a home loan to buy a property or are a first-time buyer, you will be eligible for tax deductions on both the deposit amount as well as the interest return.
The decision of whether to invest in an FD or in real estate depends entirely on your financial goals. FDs are low-risk investments that offer you high returns. At the same time, investing in real estate for a longer period of time can help you earn high profits when you sell it at the right market conditions. Hence, a thorough understanding of all factors involved will help you make the investment decision that is right for you.
Also read | Smart Investment Tips for Millennials
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