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3 Reasons Why Young Investors Should Invest In Real Estate!

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3 Reasons Why Young Investors Should Invest In Real Estate

3 Reasons Why Young Investors Should Invest In Real Estate

One of the most frequent advices that can be given to the youth when it comes to investment is starting young. And just because, the advice is so frequent, most of us tend to forget that it is actually the BEST advice anyone can be given.

Why is starting young so important? The answer is hardly rocket science. By the sheer luxury of time that youth has on hand in terms of the period of investment, the risk appetite is multiplied several times which in turn leads to investments that by design are high risk, high returns. At a simpler level, starting young means you have a lot scope for distributing your investments over a long period of time, ultimately leading to a substantial increase in the net amount invested. At a still simpler level, starting young means your money has that more time to grow and hence, higher returns.

While this common wisdom has had many young investors coming into the market, investing largely in equities and debt instruments , real estate continues to be an area out of the purview of the obvious choice of the investors. Going by the volatile nature of the economy these days however, real estate has rapidly emerged as a mode of investment that should ideally be on the top of the investment priority list, especially for the young investors. We give you a lowdown on the reasons why real estate should be preferred by the youth.

The Anti-Inflation Investment—Real estate investments are an almost guaranteed way to get around inflation. Real estate is growing market, more so because of the rapidly shrinking supply of land. You only have to go house hunting in a city like Mumbai to know the extent of land shortage in the country. A shortage supply logically means a growth in market and so long as this shortage persists, the market shall not slow down. The core point here is a careful market research before investing into the real estate. You can hardly expect your money to grow exponentially if you chose to invest your money in a landed property in remote UP. It shall still grow but not as much as it would in a more favorable location like Mumbai or Delhi-NCR. There are other considerations too, which need to be taken into account. For instance, in cities like Pune and Gurgaon, which thrive on floating population, investing in residential properties that can be leased out at a later stage is a good strategy.

These examples are illustrative. The moot point here is that investment in real estate can be an excellent strategy for the young investors to get past inflation. The essential corollary is proper market research and careful consideration before investment. Read up, ask around and ask plenty of questions. If you there is any doubt about importance of market research, read all that can go wrong with your real estate investment 6 Things Your Builder Can’t Do But Still Does.

Affordable Option—Yes, you read it right. Contrary to the popular perception, investing in real estate is actually one of the more affordable options with banks funding up to 80% of the cost. The young investors also get income tax benefits. A slightly more complex benefit is derived from the fact that young investors are expected to pay fixed installments over years which in effect amounts to purchasing an asset at a lower cost, whose value is bound to appreciate while the investor’s own income too keeps rising. For those young investors looking to discipline their investments, servicing regular EMIs is an excellent method. Of course, real estate is a volatile asset but from a reasonable perspective, it is still a safer bet than stock markets, especially when trade pundits across board have been reiterating the fact that the probability of appreciation in case of real estate investments is very high.

Tangible Asset—This is not exactly an objective benefit but may hold significant importance in several cases. Unlike old times when owning house marked a definite landmark in one’s life, young investors can now enjoy the benefits of a tangible asset pretty early on in their lives. If the property is a residential one meant for personal purposes, the obvious benefits are manifold. In several cases, the investors’ end up paying an EMI which is only slightly more or almost equal to the rent they would be paying otherwise, with an added benefit of actually residing in their ‘own’ place.

As we had stated earlier, real estate is a volatile option, even if relatively less so. And hence, the prudent way ahead is to make real estate one of the modes of investment in your portfolio and not the only one. An ideal portfolio has a balanced distribution between various options and irrespective of the benefits or the risk factors, concentration of wealth in any mode is problematic. The ideal way ahead is to start off with SIPs (systematic investment plans) and gradually proceed to real estate, as and when you reasonably acquire enough spare wealth to distribute between various investment options. The key is to be prudent with your money and invest as soon as you possibly can. And while investing in real estate, always remember, an aware investment is the only safe investment and a thorough market research is a must.

3 Reasons Why Every Lay Investors Should Invest In Mutual Funds

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3 Reasons Why Every Lay Investors Should Invest In Mutual Funds

3 Reasons Why Every Lay Investors Should Invest In Mutual Funds

Investment is a tricky business. Most of the aam janta, till a couple of years ago gladly stayed away from anything that had anything to do with bulls and bears unless they were nicely caged and chained live specimens. A huge section of the masses, for the longest period of time equated stock markets with scams ala Harshad Mehta and considered it wise to stay away.

However, with a booming Indian economy that celebrated the advent of 21st century, markets became more and more open and accessible, quickly and effectively moving beyond the traditional perceptions.

This change has been extremely positive, not just in terms of macro benefits for the economy but also micro benefits for the individual investors. Amongst these numerous positives, diversification of investment tools is one of the most important benefits that accrued to the common investors.

Mutual funds are one of the many investment tools that are available for the investors that can be used to harness the market benefits with varying degree of risks. (See our analysis of another investment tool, ULIP To ULIP Or Not To ULIP)

Mutual funds, by design, have a lot of benefits for the common/lay/first time investors. Based on our interaction with Akosha regulars including consumers, agents and related finance veterans, we culled out the most straightforward reasons from basic investment wisdom. We deliberately avoided complex reasoning and stuck to the basics of why any lay investor should consider mutual funds as an investment option.

Easy to understand, easy to allocate— Mutual funds can be broadly divided into equity, debt and balanced funds. For any first time investor, if they are aware of these three categories and how they operate, allocation of investment as per their long term financial goals is fairly simple. 

For starters, equity funds are high risk, high return funds that invest directly in stocks and hence gain or lose directly from market fluctuations. Debt funds on the contrary are low risk, low return funds that primarily invest in debt instruments like government bonds, fixed deposits and approved private deposits. Balanced funds allocate resources to both stocks and bonds, striking a balance between risk and gains.

Risk Appetite Based Allocation To Maximum Benefit—In simpler terms, mutual funds allow investors to allocate their resources to various funds based on the extent of risk they are willing to take or capable of taking. A simple thumb rule—if you want to stay invested for a long term (anywhere between 5-10 years), equity funds are your best bet because despite being high risk funds, equity funds are known yield rich returns to investors who remain invested in them for long enough. For people who can’t afford that long a span (mostly retired individuals in later years of their lives), debt fund is the way to go. Safer than their equity counterparts, they usually give a guaranteed return. Fixed deposits in banks serve similar purpose and there is usually no drastic difference between interest rates offered by debt funds and foxed deposits. However, market cycle does have a role to play and debt funds can be used as a way to diversify the portfolio and avoid concentration of money in fixed deposits. 

As an essential bottom line, mutual funds are NOT short term investments. If you don’t plan to remain invested for 3 years or more, or if you are prone to impatience, mutual funds are definitely not for you.

Systematic Investment, Disciplined Investment, Maximized Gains—Systematic Investment Plans (SIPs) are the best feature of mutual funds. For the uninitiated, SIPs allow investors to distribute their investment into periodic (usually monthly) installments that are, in most cases, auto-deducted from the investor’s account. This is very easy and manageable mode of investments, where investors don’t need to spare bulk of their savings. Besides, maintaining investment discipline, SIPs have a technical benefit in maximizing the gains and neutralizing the market fluctuations over a period of time. Simply put, when the market is low, your SIP amount shall fetch you a larger number of units as compared to when the market is on a high and the same amount shall fetch lesser number of units (because unit value or NAV fluctuates with the market), thus effectively neutralizing the fall. The pre-requisite, however is the same—you have to remain invested for a long term to secure the benefits.

There are plenty of other reasons why mutual funds are a preferred mode of investment. But as we mentioned, we have stuck to Grandma’s piece of wisdom for the lay investors. With experience, investors gain more knowledge about various instruments and market dynamics but these pointers are sufficient to get any investor started.