Mortgage funds can be a good investment—but only for the right type of investor and with the right expectations. Here’s a clear, balanced breakdown so you can decide if they suit you.
✅ What Are Mortgage Funds?
Mortgage funds pool investor money and lend it out as mortgages to borrowers (often property developers or home buyers).
Investors earn regular income, usually paid monthly or quarterly, from the interest on those loans.
They are often marketed as:
- Stable income investments
- Lower volatility than stocks
- Secured by property
⭐ Potential Benefits
- Higher Income Than Bank Deposits
Mortgage funds typically pay 6–10% annually, sometimes more depending on risk level.
- Secured Against Property
Loans are usually backed by real estate.
If a borrower defaults, the property can be sold to recover capital (though this may take time).
- Passive, Regular Income
Attractive for:
- retirees
- income-focused investors
- people wanting diversification
- Lower Market Volatility
Returns don’t move in the same way as stock markets.
⚠️ Risks You Must Know
Mortgage funds are not risk-free, even though they seem stable.
- Liquidity Risk
You might not be able to withdraw your money quickly.
During downturns, funds may:
- delay redemptions
- freeze withdrawals
- switch to “withdrawals only when loans are repaid”
This happened during:
- 2008 crisis
- COVID-19 lockdown
- Real estate slumps in several countries
- Property Market Downturn
If property prices fall or borrowers struggle:
- loan defaults increase
- capital losses become possible
- income drops
- Variable Loan Quality
Some funds lend only to low-risk borrowers; others take more risk for high yields.
You must know which type you’re buying.
- Not Protected Like Bank Deposits
They are not insured (e.g., not covered by FDIC/FSCS/DICGC etc.).
✔️ When Mortgage Funds Are a Good Investment
They’re suitable if you want:
- steady monthly income
- medium-term investment (2–5 years)
- lower volatility than equities
- diversification from stocks and bonds
…and you’re okay with:
- limited liquidity
- the possibility of delayed withdrawals
- some exposure to property risk
❌ When They Are Not a Good Investment
Avoid if you:
- need easy access to your money
- want guaranteed returns
- are uncomfortable with real estate lending risk
- don’t understand the fund’s loan portfolio
