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Ramalingam Kalirajan |8330 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Jul 10, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more

Asked by Anonymous - Jul 10, 2024Hindi

I am planning to buy a plot around 40L this mostly for a long term investment purpose. I am confused where to buy somewhere inside city outskirts or hometown which is highway facing. I stay in Hyderabad currently and my home town is 150km away from it. I recently visited a venture in hometown where I saw a highway facing plot and currently which is 5km away from town and towards this road there is a thermal plant (20km away) which would be operational in 2 years. Most of the people saying my town would be a prime location soon. I am confused now whether to buy in hometown or city where there is a easy access (50km from my place) but I am only affordable with residential plot which might be 2km away from highway. Please suggest.

Ans: You have a solid plan to invest in a plot for long-term growth. It’s great that you’re thinking ahead and evaluating your options carefully.

Evaluating Investment Options
You’re considering two main options for your plot investment:

Highway-facing plot near your hometown (150 km from Hyderabad).
Residential plot near Hyderabad outskirts (50 km from your place).
Each option has its pros and cons. Let's analyze them in detail.

Option 1: Highway-Facing Plot Near Hometown
Potential Advantages
Proximity to Thermal Plant: With a thermal plant expected to be operational in two years, there might be economic growth.

Future Prime Location: Locals believe the area will become prime soon, increasing property value.

Potential Risks
Market Speculation: Predictions about growth might not always come true. Economic changes can affect property value.

Distance from Hyderabad: 150 km away is quite far. Managing the property might be challenging if you’re living in Hyderabad.

Option 2: Residential Plot Near Hyderabad Outskirts
Potential Advantages
Closer to Hyderabad: Only 50 km away, making it easier to manage and monitor.

Urban Development: Outskirts of Hyderabad are likely to see development due to urban expansion.

Better Access: Easier access to infrastructure and amenities compared to a remote location.

Potential Risks
Market Saturation: Urban outskirts might be saturated with similar investments, affecting growth potential.

Higher Initial Cost: Cost might be higher compared to a rural area, potentially affecting your budget.

Real Estate Investment Considerations
Before making a decision, consider these factors:

Infrastructure Development
Roads and Connectivity: Good roads and connectivity enhance property value. Ensure the plot has easy access to main roads and highways.

Public Transport: Availability of public transport adds value to the property.

Economic Growth Potential
Industry and Jobs: Presence of industries or job hubs nearby can drive population growth and demand for housing.

Commercial Development: Shopping centers, schools, hospitals, and other amenities increase property value.

Legal and Regulatory Aspects
Clear Titles and Approvals: Ensure the plot has clear titles and all necessary approvals from local authorities.

Zoning Regulations: Check for any zoning regulations that might restrict the use of the plot in the future.

Environmental Factors
Flood Prone Areas: Avoid plots in areas prone to flooding or other natural disasters.

Pollution and Noise: Proximity to industrial plants can lead to pollution and noise, affecting livability and value.

Strategic Investment Advice
Long-Term Growth
Focus on areas with clear signs of long-term growth. Urban outskirts tend to have better long-term growth due to continuous urban expansion.

Market Research
Conduct thorough market research. Speak to local real estate experts and check recent property price trends in both areas.

Future Development Plans
Look into future development plans from local authorities. Planned infrastructure projects can significantly boost property values.

Disadvantages of Real Estate as an Investment
Liquidity Issues
Real estate investments are not very liquid. Selling a property can take time and may not always fetch the desired price.

Management and Maintenance
Owning property requires management and maintenance. This can be challenging, especially if the property is far from your residence.

Market Fluctuations
Property values can fluctuate based on economic conditions, leading to potential losses if the market declines.

Exploring Alternative Investments
While real estate can be a good investment, it’s also wise to explore other investment avenues. Here are some alternatives:

Mutual Funds
Mutual funds offer diversification and professional management. They can provide good returns over the long term.

Categories of Mutual Funds
Equity Funds: Invest in stocks and have high growth potential.
Debt Funds: Invest in fixed-income securities and provide stable returns.
Hybrid Funds: Invest in both equity and debt for balanced returns.
Advantages of Mutual Funds
Diversification: Spread risk across various securities.
Professional Management: Managed by experts.
Liquidity: Easier to buy and sell compared to real estate.
Disadvantages of Index Funds
Index funds track a specific index and have lower costs. However, actively managed funds can potentially offer higher returns as fund managers actively select stocks to outperform the market.

Regular Funds vs. Direct Funds
Direct funds have lower expense ratios but require time and expertise to manage. Investing through regular funds via a Mutual Fund Distributor (MFD) with a Certified Financial Planner (CFP) credential provides expert advice and continuous monitoring of your portfolio.

Final Insights
You have two viable options for your plot investment. Both have their unique advantages and potential risks. The highway-facing plot near your hometown might offer significant growth if the thermal plant boosts the local economy. However, the residential plot near Hyderabad’s outskirts provides better accessibility and might see steady growth due to urban expansion.

Considering the potential liquidity and management challenges of real estate, diversifying your investments into mutual funds might be a prudent strategy. Mutual funds offer professional management, diversification, and liquidity, aligning with your long-term financial goals.

Always consult with a Certified Financial Planner to tailor the investment strategy to your specific needs and risk appetite.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.