Many people ask me this question.

Subra why should we invest in equities and equity funds only?

My logic is simple. You save in post office instruments, bank fixed deposits, etc.

You invest in asset classes which fluctuate in annual returns. So when you put money in equities, gold or Real Estate you are investing. Along with investing comes risk. Now if you have invested in a HOUSE, you get rental yields regularly and hopefully the house will appreciate. If you invest in gold, chances are you will get some appreciation at the end of an ‘n’ period.

It is only in equities that you can handle Rs. 1000 crores – buying or selling in less than one minute. Imagine doing a transaction of that size in a information scarce market like Real Estate. It is impossible without letting half the world know that you need to do a transaction!

It is only in equities that you can get partial liquidity. If you have a house with a market value of say Rs. 3 crores – it is not possible to sell Rs. 40 lakhs out of that house. Either you sell in full or nothing. Of course you can borrow against the property – but to me that feels like paying interest on money that you have in another form! Very high and usurious rates make such a transaction difficult / expensive.

You can start small – as small as Rs. 500 per month as a SIP in a mutual fund. There is no such product available in Real Estate.

Real Estate calls for a huge LOAN COMMITMENT – upfront if you want to do a transaction. One should be worried about not having the cash flow to be able to pay the EMI. In case of a SIP if you do not have money you just stop the SIP with no penalties!

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  1. Hi

    “it is not possible to sell Rs. 40 lakhs out of that house. Either you sell in full or nothing”. Exactly similar sort of
    things is what I say to my friends, Colleagues and relatives!!!

  2. FW msg..just sharing it….

    Film actor Rajesh Khanna bought a bungalow in iconic Carter Road in Mumbai for Rs.3.5t lakhs in 1970. His heirs sold it recently for Rs.85 crores. The property has multiplied by 2428 times or an annualized return of 19.38% over 44 years.

    Samudhra Mahal in Mumbai is another expensive property. A flat purchased in 1970 at Rs.700 per sq.ft was sold at Rs.1,18,000 per sq.ft in 2013. Money multiplied by 168 times in 43 years. This works out to an annualized return of 12.66%

    In 1963, Godrej paid Rs.1 lakh to buy his first house, a 2916 sq.feet apartment at Usha Kiran, Carmicheal road, in tony South Mumbai. In 2011 he sold it for Rs.25 crore. Money multiplied by 2500 times over 48 years or an annualized return of 17.70%

    In Dalal Street, Mumbai a sq.feet was Rs.100 in 1980. After 34 years, it sells at Rs.27,000 per sq.ft. Money multiplied by 270 times in 33 years. This works out to an annualized return of 17.90%.

    The first three properties can be bought and owned by cream or elite of the society who are worth at least tens of crores, mostly hundreds of crores.

    The last property in Dalal street; your father could have bought with whatever money available at his disposal. You can buy it even now. Your son or daughter would be able to buy it even 20 years down the line.

    The last property is Sensex. A sq.feet is a metaphor for one unit. If dividend yield is also included (assuming 2% CAGR), Sensex would have delivered 20% annualized returns over last 34 years, higher than the most expensive prime properties in the country.

    Good mutual funds and many stocks have delivered returns far superior to Sensex itself.

    Power of equity is least understood in this country.

    If you can withstand notional loss (if you don’t book) in portfolio during bear markets, not worry about daily price movements, it is possible to make much better money than what can be made out of best of real estate.

    Give at least the same importance to equity as you give to real estate.

    You don’t mind holding real estate for 20 or 30 years. Please do the same for equity ignoring bull and bear markets, notional profits and losses.

    Many of you have been investing for last couple of years. Stay the course for at least another 15 to 20 years completely ignoring market fluctuations. You would be amazed at the fortune created for your retirement or to pass on to your children.

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