Evaluating Your Future: Renting vs. Selling Your Mortgage-Free Flat in Pune
Considering the offer of 92 lakh INR to sell your mortgage-free flat in Pune, renting it out for 30,000 INR per month for at least 10 years, the decision to sell your property seems complex. You're pondering whether to invest the proceeds in mutual funds for potentially higher returns. Let's break down the decision-making process for you.
Selling the Flat and Investing in Mutual Funds
Mathematical Perspective: The simple math clearly illustrates the potential benefits of utilizing the lump sum from selling your flat and investing it in high-return mutual funds. By investing 92 lakh INR in mutual funds with a 12% Compound Annual Growth Rate (CAGR) for 10 years, you can expect to grow your investment to approximately 2.86 crores. This projection is significantly higher than the returns from renting.
Comparing Rental Income and Mutual Fund Returns
Monthly Rent: 30,000 INR per month for 10 years results in 36,000,000 INR. Mutual Fund Growth: 92 lakh INR with a 12% CAGR for 10 years results in approximately 2.86 crores.Return Comparison: The nominal return from rental income over a 10-year period is approximately 3.60 crores, translating to 3.91% per annum. This is considerably lower than the potential returns from mutual funds. Even a bank fixed deposit (FD) could provide better returns, especially over a short to medium term of 3-5 years.
Security and Flexibility with Mutual Funds
Mutual funds offer several advantages over the traditional rental route:
Resilience to Market Fluctuations: Over a 10-year investment horizon, volatility is less of a concern. Moderate risk equity funds can provide returns anywhere from 12 to 14% annually, potentially doubling your investment every 6 years. High Liquidity: Unlike property, mutual funds can be liquidated at any time. You can sell portions of your investment and access part of your funds quickly, often within 3 working days (T 3).While the decision hinges on several factors, consider the following points:
Securing Your Future
Do you have children to secure their future with a steady rental income? Selling your flat won't provide this certainty. Furthermore, Capital Gains Tax must be considered. Selling for 92 lakh INR may result in a significant tax liability depending on your income and other investments.
Comparative Returns Analysis
Your current rental income of 3.60 crores over 10 years translates to an annual return of about 3.91%. In contrast, a 6-7% return from a fixed deposit may be more predictable and secure. However, given the current market conditions, the long-term alternative of investing in mutual funds presents a compelling case, especially if you maintain a diversified portfolio with periodic top-ups.
It's important to note that the current market is a buyer's market, with over 7 lakh flats for sale in India. Selling your property at the desired price may take a considerable amount of time. Additionally, property may not be the most lucrative investment in the current market scenario.
Ultimately, the choice between renting vs. selling and investing in mutual funds depends on various factors, including financial goals, risk tolerance, and time horizon. It's advisable to consult with a financial advisor to tailor a strategy that aligns with your specific needs and circumstances.