Explore the benefits of farmland and mutual funds to determine which aligns with your long-term financial and lifestyle goals.
When exploring investment options, you’re faced with a range of choices: farmland, SIPs, FDs, mutual funds, real estate, and PPFs. Each asset class offers unique benefits, making it essential to consider what best aligns with your goals. Whether you’re planning for the present or securing your future, it’s crucial to evaluate how each investment fits into your portfolio.
Investing wisely involves balancing long-term and short-term goals, including retirement, education, family, and more. Real estate and mutual funds are popular choices, with farmland emerging as a standout within real estate. While mutual funds offer diversification and capitalize on market gains through compounding, farmland provides not just financial returns but also the pride of ownership, consistent income streams, and benefits tied to sustainability and organic growth.
Feeling overwhelmed and unsure where to start? Don’t worry, we’ve got you covered.
Farmland: A Growing Opportunity
- Historical Growth: Farmland values in India have seen significant appreciation over the past decade, with annual growth rates of 10% to 12%. For example, in Vadicherla, Andhra Pradesh, prices soared from Rs 20,000 to Rs 12 lakh per acre by 2012, according to Farmlandbazaar. Similarly, in Ramavarapadu near Vijayawada, prices surged from Rs 7 lakh to Rs 7 crore over ten years. This surge is driven by increased demand for organic, homegrown food post-pandemic, with some areas experiencing nearly 50-fold price increases.
- Stable Returns: Farmland has consistently outperformed traditional investment options like equities and bonds, particularly during economic downturns. Globally, farmland has delivered an average annual return of around 11% over the last 20 years, providing stability even during periods of market volatility.
- Inflation Hedge: Unlike many financial assets, farmland offers an excellent hedge against inflation. The value of both land and agricultural products typically increases with inflation, ensuring that farmland retains or even grows in value during uncertain economic conditions.
- Income Potential: Farmland offers diverse revenue streams, including leasing, farming, and timber cultivation, which generate a steady cash flow and enhance its long-term growth potential. The rising demand for organic food presents lucrative opportunities for those who grow their own produce. Investing in managed farmland not only provides appreciation in land value but also consistent returns from farm yields. This creates an automated revenue cycle while contributing positively to the environment by maintaining green, sustainable practices.
- Tax Benefits on Agricultural Investments: In India, income from agricultural ventures is tax-free. As per Section 10(1) of the Income Tax Act of 1961, profits earned from selling agricultural produce are exempt from taxes. This makes agricultural investments, including farmland, a tax-efficient choice for investors.
“Farmland not only yields financial returns but also fosters life skills, values, and a self-sustaining lifestyle that goes beyond mere monetary gain. While financial gain is undeniably important, the broader benefits of owning farmland extend beyond mere monetary gain.” Says Raghvendra Reddy A, Marketing Manager, Triguna Country Homes
Mutual Funds: Diversified and Liquid
- Diversification: Mutual funds allow investors to spread their investments across a variety of assets, reducing risk through diversification. Over the long term, equity mutual funds in India have delivered average returns of 12% to 15% annually, making them a popular choice for growth-focused investors. Kumar Binit, Co-Founder & CEO at FinMapp highlights, “The compounding effect in mutual funds generates substantial long-term gains, offering a reliable path to wealth creation through reinvested returns.”
- Liquidity: One of the key advantages of mutual funds is their liquidity. Investors can buy and sell them with relative ease, making them ideal for those who may need quick access to their capital in the short or medium term.
- Tax Liabilities: When you sell equity fund units held for over a year, you realize long-term capital gains. According to Groww, in India, these gains are tax-free up to Rs 1.25 lakh per year. Any amount above this threshold is taxed at 12.5% as long-term capital gains (LTCG), without the benefit of indexation.
- Management Fees: Mutual funds come with associated management fees, which can range from 1% to 2.5%. Over time, these fees can reduce overall returns, especially when compared to farmland, which typically has lower ongoing costs when managed efficiently.
Farmland vs. Mutual Funds: Striking the Balance
While mutual funds capitalize on the power of compounding and offer liquidity, farmland provides the tangible security of land ownership and consistent cash flow. In recent years, certain farmland investments have even shown appreciation rates as high as 75%, outperforming many mutual funds. Additionally, the shift towards healthier lifestyles, bigger homes, and organic farming post-pandemic has made farmland an even more attractive investment.
For investors looking to create a balanced portfolio, the income earned from farmland can be reinvested into mutual funds, combining stability with compounding growth. This dual approach provides both security and the potential for high returns, while allowing you to diversify across asset classes.
For long-term growth, the ideal strategy is a combination of both mutual funds and farmland. Farmland offers consistent returns, inflation resistance, and a tangible asset, while mutual funds offer liquidity and compounding benefits. In a post-pandemic world, with increasing demand for organic food and sustainable living, farmland has emerged as a smart, stable investment choice. Additionally, owning farmland brings the pride of land ownership, which resonates deeply in the Indian context, fulfilling both emotional and financial needs.