Gold has been the most preferred investment asset for a very long time. However, as times have changed, real estate has outranked gold in terms of investment. Apart from real estate and gold, fixed deposits have become one of the best investment options for savvy investors.
Undoubtedly, gold and bank fixed deposits are fundamental to a well-rounded investment portfolio because of their security and stability, as they reward investors with guaranteed future returns. However, with time, more and more individuals are becoming aware of the rewarding opportunities offered by real estate, especially related to high-value commercial properties.
Commercial real estate is gaining ground as the market changes, as more individual investors notice the abundant opportunities that more significant realty investments can provide.
In this regard, it's essential to compare the three investment options of gold, fixed deposits, and commercial real estate to know which might be more suited for the financial goals one has in mind and what one's choices are on the risk level.
Most of us might have heard straightforward advice, " Don’t put all your eggs in one basket.” This means you must spread out your investments to lower the risks of suffering losses with higher returns.
In this article, we will compare commercial real estate, gold, and fixed deposits to conclude which can help you yield higher return rates on investment.
Gold Investment
Gold has long attracted investors; in India, it occupies a place of honour amid monetary and cultural considerations.
For most of them, it has turned out to be nothing short of a delightful ritual, followed almost in a dedicated manner to check the day's rise and fall in the price of this metal, like the weather.
Apart from its investment value, gold is India's pride, dear to its people because of the tremendous emotional value attached to it; it is the most prized possession bought by most for life's big occasions, including weddings and festivals, where it plays a mighty role in various rituals and traditions.
Financial experts frequently suggest that people reserve about 10-15% of their investment portfolio for gold, highlighting the stable and valuable asset in a diversified financial plan.
Advantages of gold investment
Gold has been one of the most reliable high-return-generating investments in the long run.
Banks that grant loans against gold assets to meet sudden requirements offer loans up to 70-90 per cent of the value of your holdings.
Investing in gold can start with a relatively modest sum or by making incremental purchases.
Gold is also a physical and tangible asset and an investment of comparatively low risk compared to other asset classes. It has high liquidity, enabling the holder to sell it to recover the capital invested.
Besides, one can invest in various forms of gold, such as physical gold, jewellery, gold mutual funds, gold ETFs, sovereign gold bonds, and digital gold.
Returns from investments in gold are capital gains and, hence, are treated accordingly for tax purposes, although indexation benefits are available.
Disadvantages of gold investment
Gold prices have been consolidated since the second half of 2020 and have outperformed many other asset classes. At Rs 49,945 per 10 grams (New Delhi), owning a kilo of gold in your portfolio equals owning a luxury car or a mid-range apartment in some cities, garnered from sellable profits through gradual selling.
An investor, in 1980, owning a kilo of gold would reject it that year to receive an average of Rs 1.3 lakh. However, should he decide to shut it into his portfolio for just one selling turn in 2020, it would have netted him around 3,659 per cent returns!
Most investors consider gold to complement an inflation hedge with a thin chance of price dips because of defective global factors. However, in 2021, gold returned to nearly zero, with about 5.25 per cent CAGR having been implemented in just 10 years, per the Financial Express report.
In place of that, if you were to keep yearly inflation between 5 to 7 per cent in context, gold would not perform as well as you would have expected.
Fixed Deposits
Although fixed deposits (FDs) might not be as exciting as gold, their affinity among many Indians in financial security has never been wanted. However, it is well known how the charm of this investment vehicle has completely taken a back seat in recent years.
For a long time, interest rates on FDs have seen a slow downward slide, settling between 4 and 6 per cent, gradually losing ground from their earlier attractive 5 to 7 per cent range that once lured many savers. Yet, with a decline in returns, FDs have remained the investment choice for many in India, especially for large lump-sum amounts.
The extended preference for FDs is primarily because of their safety and risk-free nature in a highly volatile market that cannot be denied. In support of this trend, reports from the Reserve Bank of India (RBI) highlighted a microscopic rise in deposits amounting to more than Rs 2.8 lakh crore for six weeks on lockdown until May 2020.
Along with the new data, onions flowing more into FDs mapped to March 27 up to May 8, 2021, amount to another Rs 4.4 lakh crore. This dovetails enormously with the people's evident confidence in this form of saving yardstick, particularly during a time of grave economic distress.
Advantages of Fixed Deposits
Fixed deposits assure returns, making them a secure and safe investment option.
You can invest in tax-saver FDs, gaining somewhat higher interest rates with an obligatory lock-in of five years while enjoying tax deduction benefits under Section 80C.
Fixed deposits are not affected by any market volatility. Hence, the returns on it do not fluctuate.
FD tenures are flexible to choose from.
You can select whether you want the interest compounded or withdrawn monthly, quarterly, semiannually, or yearly.
Senior citizens are also eligible for slightly higher interest rates on fixed deposits.
Many financial institutions will lend you up to 80 per cent of the value of your FD.
Disadvantages of Fixed Deposits
FDs are, at present, giving the lowest return possible.
Generally, NBFCs used to give a marginally higher interest rate than those offered by banks, but their credit rating, track record, and reliability must be duly verified.
FDs offer lower liquidity, meaning large charges are paid when you make a premature withdrawal on normal FDs, which may forfeit a significant portion of the interest.
Furthermore, you cannot pull any cash invested in tax-saver FDs until the end due to a lock-in period. All interest earned on FDs is taxable in your bracket.
Commercial Real Estate Investment
Investing in FDs and gold can benefit your investment portfolio, but commercial real estate can offer you handsome returns on your investments.
The realty sector has stayed stable throughout the pandemic, and 2022, due to pent-up demand, could be a landmark year. Experts believe that the return on investment for commercial properties is higher and far more sustainable than for residential properties.
Commercial real estate indeed needs higher investments, but if you have rich lump-sum capital to invest in, you will reap much higher returns.
Several factors need to be considered while investing in commercial property: location, connectivity, and social and physical infrastructure, among others. Reports show that demand for commercial properties has picked up, with office space absorption reaching 12 million sq ft in the third quarter of 2021.
Investors still quickly flock to top Indian cities such as Ahmedabad, Mumbai, Delhi, Noida, Hyderabad, Chennai, Gurgaon, and Greater Noida for sustained industrial and business growth and high rental yields.
Advantages of commercial real estate investment
Long-term capital appreciation gives a high return on investment. When they begin to earn, regular income is generated through rentals.
Experts believe commercial properties can yield up to three times better than residential investments.
The investors get the advantage of the boom in commercial property demand in India.
Over the past five years, commercial properties' average rental yields have been pegged at 8-12 per cent.
The income stability for the owners arises because commercial real estate tenants are primarily companies and businesses, with tenures ranging from 10 to 20 years.
Disadvantages of commercial real estate investment
Investments in commercial real estate demand bigger capital, making it difficult for individual investors to pursue.
One needs to do homework depending on having thorough market knowledge to find the right property.
There might be temporary fluctuations, such as a tenant leaving the space while searching for a new tenant.
Conclusion
When considering investment opportunities purely from a value point of view, commercial real estate stands out as a preferred choice for wealth creation in the long run. Unlike many investments, commercial properties focus on persistent growth over time rather than short, quick profits.
On the contrary, one generally thinks that fixed deposits are secure fixed-interest-paying assets, but they are the least responsible for their return performance, among many other investments. There is very little, if not no, capital appreciation involved, along with the feel-among-sense of security they provide.
Further, the evergreen safe haven is quite unstable. It has faced severe volatility in recent years and hasn't delivered strong performance. This adds further complication to making an investment decision between different avenues.
Those who want to invest a large lump sum will find commercial real estate another appealing option. It will provide not only much capital appreciation but also income from rents, making it a potential powerhouse for fuelling long-term financial security and wealth.
If you want to invest in the best of commercial real estate investment option, contact RES Management and get the expert guidance from the best industry experts.
