Buying Property to Rent Out vs. Investing the Same Money
Buying Property to Rent Out vs. Investing the Same Money: A City-Wise Return Comparison
If you have ₹1 crore to invest, would you earn more buying a flat to rent out, parking it in a fixed deposit, or putting it in the stock market? We ran the numbers city by city, using current rental yields, property appreciation rates, FD rates, and long-term Nifty 50 returns.
The Question Every Investor Eventually Asks
"Should I buy a second property and rent it out, or just invest the same money?" is one of the most common questions we hear from clients — and one of the hardest to answer honestly, because the answer depends heavily on which city you're buying in, how long you plan to hold, and what you value beyond pure returns.
Real estate returns in India come from two sources: rental yield (the annual rent as a percentage of the property's value) and capital appreciation (how much the property's price grows over time). Together, these make up the property's total return — the number that should be compared against a fixed deposit's interest rate or the stock market's long-term CAGR (Compound Annual Growth Rate).
Step 1: The Three Options, Side by Side
| Option | Typical Long-Term Return | Risk & Liquidity |
|---|---|---|
| Bank Fixed Deposit | ~6.5% – 7.2% p.a. (current top rates, 3–5 year tenure) | Very low risk, fully liquid on premature withdrawal (with a minor penalty), fully taxable at slab rate |
| Nifty 50 (Equity Index) | ~11% – 13% p.a. (20–25 year CAGR, Total Return Index) | High short-term volatility, high liquidity, favourable long-term capital gains tax |
| Residential Property (Buy-to-Rent) | ~9% – 12%+ p.a. (appreciation + rental yield, varies sharply by city) | Low liquidity, high transaction costs, active management required, tenant/vacancy risk |
On paper, equities have outpaced both property and fixed deposits over the long run in India. But that national-average comparison hides a lot — and for property in particular, the city you choose changes the outcome dramatically.
Step 2: How Rental Yield and Appreciation Differ by City
Here is the trade-off every Indian city presents: expensive metros like Mumbai offer strong capital appreciation but weak rental income, while more affordable cities like Delhi, Kolkata, and Ahmedabad offer stronger rental yields but comparatively slower price growth. Bengaluru and Hyderabad currently offer a rare combination of both.
| City | Illustrative Long-Term Appreciation (CAGR) | Gross Rental Yield (2026) |
|---|---|---|
| Bengaluru | ~11.5% | ~4.0% |
| Hyderabad | ~10.0% | ~4.5% |
| Delhi-NCR | ~9.5% | ~5.0% |
| Pune | ~9.5% | ~3.3% |
| Mumbai (MMR) | ~9.0% | ~3.1% |
| Ahmedabad | ~8.0% | ~4.8% |
| Chennai | ~7.5% | ~4.5% |
| Kolkata | ~6.5% | ~5.5% |
Step 3: Worked Example — ₹1 Crore Over 10 Years
To make this concrete, here is how ₹1,00,00,000 (₹1 crore) would have grown over a 10-year holding period under each option, using the assumptions above.
| Investment Option | Effective 10-Year CAGR | Value After 10 Years |
|---|---|---|
| Bank Fixed Deposit (7% p.a.) | 7.00% | ₹1,96,71,514 |
| Nifty 50 Index (12% p.a. CAGR) | 12.00% | ₹3,10,58,482 |
| Property (Buy-to-Rent) — by City | ||
| Kolkata | 9.30% | ₹2,43,37,824 |
| Chennai | 9.76% | ₹2,53,84,958 |
| Ahmedabad | 10.36% | ₹2,68,04,412 |
| Mumbai (MMR) | 10.53% | ₹2,72,05,993 |
| Pune | 11.09% | ₹2,86,33,448 |
| Delhi-NCR | 11.84% | ₹3,06,17,385 |
| Hyderabad | 12.09% | ₹3,13,16,305 |
| Bengaluru | 13.29% | ₹3,48,38,460 |
- Property value compounds annually at the city's illustrative appreciation rate; rental income is calculated each year as a percentage of the then-current property value, and grows accordingly.
- Net rental income assumes a 25% deduction from gross rent for maintenance, property tax, society charges, and vacancy periods — a conservative but realistic haircut.
- Rental income is treated as cumulative cash received, not reinvested and compounded — if you reinvest your rent each year (e.g., into an FD or SIP), property's real total return would be higher than shown here.
- One-time transaction costs are excluded from this table — stamp duty, registration, and brokerage typically add 6–8% to a property purchase in most Indian states, and would reduce the effective property return shown above by roughly 0.5–1 percentage point of CAGR over a 10-year hold.
- Fixed deposit and Nifty 50 figures assume simple compounding at the stated rate with no withdrawals, and exclude taxes (see below).
Step 3B: The Same Comparison, After Tax and Transaction Costs
The table above is useful for comparing headline growth rates, but it overstates what actually lands in your bank account. Once you account for stamp duty on the way in, income tax on rent and FD interest each year, and capital gains tax on the way out, the picture tightens considerably — and the ranking of options changes too.
| Investment Option | Effective 10-Year CAGR (post-tax) | Value After 10 Years (post-tax, post-cost) |
|---|---|---|
| Bank Fixed Deposit | 4.82% | ₹1,60,05,742 |
| Nifty 50 Index | 10.97% | ₹2,83,20,879 |
| Property (Buy-to-Rent) — by City | ||
| Kolkata | 7.27% | ₹2,01,65,042 |
| Chennai | 7.77% | ₹2,11,35,739 |
| Ahmedabad | 8.31% | ₹2,22,23,509 |
| Mumbai (MMR) | 8.59% | ₹2,28,03,550 |
| Pune | 9.11% | ₹2,39,16,160 |
| Delhi-NCR | 9.70% | ₹2,52,30,379 |
| Hyderabad | 9.97% | ₹2,58,67,393 |
| Bengaluru | 11.15% | ₹2,87,67,341 |
- Acquisition cost: of the ₹1 crore available, 7% is assumed to go toward stamp duty, registration, and brokerage (varies by state, typically 6–8%) — so only ₹93.46 lakh actually buys the property, with the rest spent upfront on transaction costs.
- Rental income tax: calculated per Indian tax rules for "Income from House Property" — a flat 30% standard deduction is applied to gross rent, and the remainder is taxed at a 30% slab rate plus 4% cess (31.2% effective), applied every year as rent is earned.
- Real economic costs: a further 25% of gross rent is deducted separately for actual maintenance, society charges, and vacancy — this is a real cash cost, distinct from the notional tax deduction above.
- Capital gains tax on property: applied at exit, using the current flat long-term capital gains rate of 12.5% (plus 4% cess = 13% effective) on the gain between purchase price and final sale value, with no indexation benefit (per rules applicable to property purchased after July 2024).
- Capital gains tax on Nifty 50: applied at exit at the same 12.5% (13% effective) long-term equity capital gains rate on the total gain, for consistency — in practice a small annual exemption threshold would modestly reduce this.
- Fixed deposit tax: FD interest is taxed annually at the 30% slab rate (31.2% effective with cess) as it accrues, since FD interest cannot be deferred like capital gains — this is compounded at the resulting lower post-tax rate throughout.
- Selling costs on exit (brokerage on property resale, exit load on funds) are not separately modelled and would very slightly reduce all figures further.
Step 4: What the Numbers Don't Show
A pure return comparison is only half the picture. Before you decide, weigh these practical factors:
Taxation (Summarised)
Step 3B above already builds tax into the numbers, but the underlying pattern is worth remembering: FD interest is taxed every year at your slab rate with no deferral, which is why it consistently loses the most ground after tax. Rental income is taxed annually too, but only on 70% of gross rent (a standard 30% deduction applies automatically). Both property and equity gains are only taxed once, on exit, at the long-term capital gains rate — which is a meaningful structural advantage for both over a pure fixed-income instrument.
Liquidity
An FD can be broken in a day. Nifty 50 index fund units can be sold and settled within a few working days. A property, by contrast, can take months to sell at a fair price — and in a slow market, considerably longer. If you may need the money on short notice, this matters more than the headline return.
Effort and Risk
A rented property is not a passive investment. Tenant vetting, maintenance, vacancy periods, potential legal disputes, and society politics all add a time cost that an FD or index fund simply doesn't have. This "hassle factor" is real and should be priced into your decision, even though it doesn't show up in a CAGR table.
Leverage
Unlike an FD or a stock portfolio, property can be bought using a home loan — meaning you can control a larger asset with a smaller upfront outlay. If prices rise, the returns on your actual cash invested (as opposed to the property's full value) can be significantly higher than the CAGR figures above — but the reverse is equally true if prices stagnate or fall while loan interest keeps accruing.
Key Takeaways
| Insight | Detail |
|---|---|
| City choice matters more than "real estate vs. equity" | Even after tax, the gap between the best and worst-performing city (Bengaluru vs. Kolkata, roughly ₹86 lakh on a ₹1 crore investment over 10 years) was larger than the gap between average property and the Nifty 50. |
| Rental yield and appreciation trade off against each other | High-appreciation cities (Bengaluru, Hyderabad) tend to have lower rental yields; high-yield cities (Kolkata, Delhi) tend to appreciate more slowly. Few cities offer both. |
| Taxation narrows the gap between equity and top-city property | Before tax, Bengaluru property beat the Nifty 50 by ₹38 lakh; after tax, that gap shrinks to under ₹5 lakh — largely because the Nifty's single exit-tax structure is more efficient than property's mix of annual rental tax plus exit capital gains tax. |
| Fixed deposits lose the most to tax | A 7% FD effectively returns under 5% post-tax for a top-bracket investor, since interest is taxed annually with no deferral — the steepest real-return erosion of any option compared here. |
Sources
- NSE Indices Limited — Nifty 50 Whitepaper 2026 & Factsheet (June 2026)
- Global Property Guide — Gross Rental Yields in India (Q2 2026)
- PropTiger RealInsight Residential Report, Q1 2026
- TradeBrains Money — City-wise Property Price Appreciation, 2026
- BankBazaar & Zeebiz — Bank FD Rate Comparisons, April 2026
- Ashiana Housing — CAGR Calculator & Real Estate Returns Guide, 2025–26