But a similar effect would be seen in equities if one had the stomach to hold it for so long. However the daily or the minute-to-minute price quotations in stocks cause sleepless nights to some. If only they could ignore the short-term price volatility of stocks and hold on to them for the long term, they would reap good re wards there too. Thus, I concluded, in vesting in real estate is just as risky, if not more, than investing in stocks.

Unforeseen risks in realty

Take the example of Arun Jain. His fa ther was in government service. Upon retirement the father bought an acre of land on the outskirts of the city. He built a small house and lived there. After about 15 years the city had grown so much that his plot was now very much a part of the city. It was now surrounded by highrise buildings. Everyone told him that the price of his plot was now Rs 5 crore. Jain's father had no interest in selling it and continued to live there. A few years later, Jain Senior passed away.

Arun, who had by then settled in the US, decided to sell off the property. He got offers worth Rs 50 lakh. Arun was shocked and enquired why the expected ther added: "This is not to say that real estate is a bad investment. It's just that it bears a certain amount of risk, just like any other investment."

Somesh was lost in thought."What about investing in stocks?" Madhav enquired.

Like real-estate, stocks also have some advantages and some disadvan tages. The greatest challenge in stock market investing is choosing the right basket of stocks or mutual funds. But the advantage of stocks is that they are very liquid, one can invest small amounts at a time, and the transaction cost is low compared to real estate. The lower transaction cost is due to the absence of stamp duty and long term capital gains tax on equities, which are ap plicable to real-estate transactions. More over, the absence of any "cash" component (as is demanded in real-es tate purchases) in buy ing stocks means that even middle-class people can buy them.

With the launch of index funds and exchange-traded funds (ETFs) stock investing has been greatly simplified. It reduces stock-picking risks and assures returns that very closely replicate those from stock market indices such as the stock market indices such as the Sensex or the Nifty.

"So where does one invest?" asked Madhav.

"A combination of both real estate and stocks is desirable," I said. As a thumb rule, for an upper middle class household, up to 50 per cent of their total wealth can be in real estate. Of the remainder of the portfolio, a percentage equal to 100 minus age should be invested in stock markets (preferably index funds or index ETFs). For example, for a 30-year-old, (100 - 30 = 70), therefore, 70 per cent of non-real estate assets should be invested in equities.

Somesh was no longer lost in thought. He looked at Madhav and nodded. The conversation moved on to other subjects. price of Rs 5 crore was not belearnt that the government had deemed the land to be covered under the "hill tops and hill slopes" regulation. This meant that no construction was allowed on that plot of land. "But there are buildings all around our plot," he protested. He was informed that they had come up before the new rule came into effect. Since no new buildings are permitted now, the value was down to just one-tenth of the earlier price.