Mutual fund vs Real Estate Crowdfunding

Selecting an investment plan becomes a tedious task as there are a variety of options available starting from mutual funds, stocks, bonds, gold, bitcoins, real estate crowdfunding etc. While deciding the best investment plan you should invest in platforms that are ideal for you. Whether you are looking for a long term or a short term investment, high risk with high returns or low risk with minimum returns. Therefore the portfolio depends based on your requirements and investment needs. Let us understand the two most commonly used investment plans and compare the two investment options – Mutual fund and real estate crowdfunding. 

What are Mutual Funds?

Mutual Funds are investment plans that enable the investor to pool a sum of money together and invest in a large group of assets such as bonds and stocks. It is professionally managed by the fund managers that make up the fund’s portfolio and invests in capital assets.

Different types of Mutual Funds:

  1. Money market funds:

Money market funds are the funds invested in short-term fixed income securities such as governemnt bonds, certificates of deposit, etc. They are safer investments with lower potential returns

  1. Fixed income funds:

Fixed income funds pay a fixed rate of return on a regular basis. Fixed income funds include government bonds, corporate bonds, high-yield corporate bonds, etc.

  1. Equity funds:

Equity funds are invested in stock and grow faster than money market or fixed-income funds. There is usually a higher risk in fixed income funds. Equity funds include large-cap stocks, mid-cap stock, small-cap stocks

  1. Balanced funds:

Balanced funds are a mix of equity and fixed-income securities. The balanced fund tries to balance in achieving higher returns against loss of money. 

  1. Index funds:

Index funds tracks the performance of a specific index. These funds have lower costs than the actively managed funds 

  1. Specialty funds:

Specialty funds are focused on specialized mandate such as commodities, real estate, etc

  1. Funds of funds:

These type of funds invests in other funds and are similar to balanced funds. They try to make asset allocation and diversification simpler. 

What is Real Estate crowdfunding?

Real estate crowdfunding is an investment plan where crowdfunding is used to raise capital for real estate investments. Funds from investors are pooled in together allowing them to invest in variety of properties without any hassle of brokers or dealers.

Real estate crowdfunding is a viable option of raising money amongst the real estate investors. It comprises of raising money by buying or selling the properties. This approach is feasible as it allows a small amount of finances from various investors to invest in real estate property. The main advantage of real estate crowdfunding is that it gives small investors the opportunity to participate in highly sophisticated real projects and high incomes. 

Types of real estate crowdfunding:

  • Equity-based
  • Debt
  • Equity-based:

Equity-based real estate crowdfunding provides higher returns when compared to debt investing. In equity-based, you will receive returns based on the property’s rental income less than the crowdfunding platform fees. For instance,  if the property is sold, the investors earn a share of the property’s appreciation. The major drawback of this type of real estate crowdfunding is that you can lose money if the value of the property decreases. 

  • Debt:

Debt real estate crowdfunding investment is the most simple and common route investors prefer. In this type of investment once you lend funds to the owner of the property you will receive a fixed interest based on the owners mortgage loan and the amount that you have invested. 

Real estate crowdfunding vs Mutual Funds:

FeaturesReal Estate CrowdfundingMutual Funds
Simplicity Investing in real estate crowdfunding does not require to understand any complex statistical ratios. It is a simple demand and supply market and easy to understandIn order to find mutual fund schemes that suit best for your objectives requires you to look at various performance ratios and indices. 
Increasing the value of an investment Once the property is purchased you can increase its value which will fetch good returnsIn Mutual Funds, the returns depend on the underlying asset and there is nothing that can be done to increase its value
Inflation effectsInvesting in real estate crowdfunding is a protection against inflation. When there is boom the property value also increasesInflation tends to have a dampening effect on mutual fund returns. Because investors try to withdraw their investments during inflation
Capital appreciation and regular income Real estate crowdfunding offers both capital appreciation and regular income. For instance, when you purchase a property you get dual possibilities of income. At first, the property increases its value. And secondly you can lease the property and earn a regular income. 
When it comes to Mutual Funds you will have to choose between growth and dividend options. Either you grow your portfolio or receive regular income
LiquidityReal estate crowdfunding are not highly liquid investments Mutual fund investments can be liquidated within a few days and offer high liquidity. 
Minimum Investment amount  Real estate crowdfunding allows minimum investment optionMutual Funds investments can be made even with minimum amounts of money-making options

Bottom line:

From the above discussion and analysis, we can conclude that both mutual funds and real estate crowdfunding have their own pros and cons. Therefore it is important to choose your investment plan based on your financial decision and risk factor. While mutual funds provide less risk with minimum returns. Real estate crowdfunding involves high risk with higher returns. Depending on your financial decision and the investment goals you can choose to decide which investment plans are best suited for your portfolio. 

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