Real Estate vs Mutual Funds vs InvITs vs Stocks: Whose Return on Investment is Better?

Retail investors are investing in stocks, mutual funds, Infrastructure Investment Trusts (InvITs), and real estate. Learn the best investment options.

best ROI

Traditionally, Indian households love to invest in a wide range of physical assets and precious metals (gold, silver, real estate, etc.). Over the last few years, retail investors have started investing more in stocks and other financial assets in addition to precious metals and real estate. Before exploring why stock market investment is increasing and which are the best investment options currently, let’s check some data.

According to India Wealth Report's 9th edition by Karvy Private Wealth, the financial asset proportion in the total individual wealth of Indians increased from 58.48% in FY17 to 60.2% in FY18. According to Karvy Private Wealth's CEO, Abhijit Bhave, this proportion will jump to 67.98% by FY23.

Why is this shift happening? In this article, we will explore which investment is best. We’ll also compare real estate vs mutual funds, stock market investment, and Infrastructure Investment Trusts (InvITs). Let’s get started with our comparative study.

Stock Market Investment

The stock market is considered one of the best wealth generators. In the last 8 years (2014 to 2021), the Indian stock market return has hovered between 5.56% and 31.26% (except for 2019). The average stock market return during 1984-2021 was 19.7%. In 2021, the return was 21.5%.

The expectation of high returns is one of the reasons why stock market participation has jumped in recent years. In the last two and half years, around 60 million demat accounts were opened in India. During 2020-21 (the pandemic-stricken year), 14.2 million new individual investors joined the stock market.

Two major reasons for this optimism are:

  • Increase in faith in the Indian economy and the stock market
  • Potential to earn high returns

As stock market investment has high volatility, the risk of making losses is also high. That's why beginners in this market usually end up making losses. Many investors have unrealistic expectations too. If you are a risk-averse person, there may be better investment options than stock market investment. To learn more on private equity industry in India, check this.

Mutual Funds

In India, the growth rate of the mutual fund industry is around 40%. Experts believe that it will increase by 30% by the end of 2022 alone. According to estimates, the total number of registered mutual fund investors will be around 1.88 crores in 2022.

In the last 3 years, 5 years, and 10 years, the average annual return of mutual funds in India was 7.8%, 6.3%, and 6.5%, respectively. However, the average yearly return of large-cap funds in the last 10 years is 13.36%. If you are interested in investing in mutual funds, you can expect a 9-to-15% return in the long run (at least 5 years).

Mutual funds are risky assets. So, it would help to be cautious before investing in mutual funds.

Real Estate Investment

It is currently (especially since the outbreak of the Covid-19 pandemic) an underperforming asset class. During 2001-2007, real estate investment doubled every 3-to-5 years. It gave an annual return of 30% during this period. However, in the last ten years, yearly real estate investment returns have come down to 10%. Most experts believe that the days of extraordinary real estate returns are over.

Infrastructure Investment Trusts (InvITs)

Infrastructure Investment Trusts (InvITs) have become very popular among people. It is because more people are looking for comparatively safer options that provide a higher return than low-yielding bonds.

InvITs are low-risk and highly regulated financial products. They are governed by one of the strongest frameworks in the world, SEBI’s (Infrastructure Investment Trusts) Regulations, 2014. The leading Infrastructure Investment Trusts (including IRB InvIT, IndiGrid, Indinfravit, etc.) have AAA ratings from ICRA, CRISIL, and India Ratings. When compared to NSE 500, Indigrid InvIT's beta value is 0.22x. It also indicates the low-risk potential of InvITs.

There are fifteen SEBI-registered InvITs currently. They provide a return of 8-10% annually return. Reports say that some of the returns provided are in double digits too. They are:

  • IRB InvIT (publicly listed): 83% annual return
  • India Grid Trust (publicly listed): 56% annual return
  • PowerGrid InvIT (privately listed): Over 20% annual return

With the Indian government emphasizing more on infrastructure, the prospects of Infrastructure Investment Trusts (InvITs) will improve. The Union Government has proposed ₹ 10 trillion expenditure in infrastructure investment in Budget 2022-23. In terms of outlays, year-on-year investment in roads and railways has increased by more than 50%. Some of these recent announcements have made Infrastructure Investment Trusts more lucrative in India.

Conclusion

InvITs (Infrastructure Investment Trusts) are the best investment options when you compare them with real estate vs mutual funds and stock market investment. This is because they provide you with an annual return significantly higher than the ongoing inflation of over 6%. Unlike stocks, real estate, and mutual funds, Infrastructure Investment Trusts are low-risk assets.

Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.

Reference:

  • https://www.financialexpress.com/money/invits-vs-mutual-funds-vs-real-estate-vs-stock-market-investment-which-is-better/1894542/
  • https://www.livemint.com/Money/wtXiRvQGgLo6MvJLGECfbL/Financial-assets-outpace-physical-in-individual-portfolios.html
  • https://www.theglobaleconomy.com/India/Stock_market_return/
  • https://economictimes.indiatimes.com/opinion/et-commentary/view-how-retail-participation-has-changed-the-dna-of-indian-markets/articleshow/94689736.cms
  • https://timesofindia.indiatimes.com/india/why-142-lakh-new-investors-joined-stock-market-in-covid-times/articleshow/83801334.cms
  • https://groww.in/blog/mutual-funds-industry-prospects

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