Index funds have come a long way since the Vanguard Group launched the world’s first index-tracking mutual fund in 1976.¹

Today, index investing—also known as passive investing—has become one of the most popular ways to invest in the stock market.² As of June 2025, 51.6% or $17.5 trillion of assets invested in publicly traded equities and bonds are held in index funds, while the remaining $16.4 trillion or 48.4% are held in active funds.³

Chart source: Active and Index Investing. Investment Company Institute (ICI). June 2025.

Index funds offer broad market exposure and liquidity, but they also have limits. Returns are tied to market performance, and investors cannot outperform the benchmark. For accredited investors seeking portfolio diversification, passive income, and higher potential returns, private real estate funds like those from DLP Capital could provide compelling advantages.

Comparing private real estate funds and index funds

Like index funds—which hold hundreds or thousands of positions at once, depending on the index they track—private real estate funds also allocate to a large number of equity or debt deals simultaneously. This means that private funds, such as index funds, can enable you to gain diversified exposure to an underlying asset class through a single investment.

Both index funds and real estate funds are overseen by professional investment teams, which can provide investors with potential passive income in the form of dividends or distributions.

That said, there are important differences that highlight why private real estate may offer unique value. Unlike index funds, most private real estate funds are actively managed—the fund’s investment team will seek to outperform, rather than match, the return of a benchmark index.

Liquidity is another factor. While index mutual funds and index exchange-traded funds (ETFs) offer daily and continuous liquidity, private real estate funds may offer monthly, quarterly, or annual liquidity. This relative illiquidity means that private real estate funds typically target higher returns, a phenomenon known as liquidity (or sometimes illiquidity) premium.⁴

Leverage can be used to amplify growth potential. For example, real estate credit funds may employ a form of leverage called back-leverage, in which the fund finances a portion of loans extended to borrowers using warehouse lines of credit. The use of leverage enables private real estate funds, such as those offered by DLP Capital, to potentially produce higher returns without requiring investors to manage financing themselves.

Sponsors can gain access to exclusive opportunities through private real estate funds that are otherwise unavailable in public markets. While ordinary investors can purchase index funds, many private real estate funds are typically only available to accredited investors. To become an accredited investor, you’ll need to meet the definition set by the U.S. Securities and Exchange Commission (SEC), which requires you to fulfill one of the following financial criteria:

The net worth test: Have a net worth of $1 million or more, either individually or in combination with your spouse.⁵
The income test: Have earned a gross income of at least $200,000 ($300,000 in combination with your spouse) in each of the preceding two years, and reasonably expect to do the same in the current year.⁵

Which investment is right for you?

You do not have to choose between index funds and real estate funds. Combining index and private real estate funds can help capture equity growth and reduce portfolio volatility. By blending index funds with DLP Capital’s sponsored real estate funds, investors can build a potentially more resilient, income-generating portfolio.

Ultimately, investing in private real estate sponsored funds like those offered by DLP Capital could allow accredited investors to gain:

Access to Exclusive Opportunities: Private real estate funds are typically only available to accredited investors. If you’re eligible, you could benefit from including this alternative asset class in your portfolio.
Passive Exposure to Real Estate: Private real estate funds are managed by professional fund managers, allowing you to gain exposure to real estate without the day-to-day hassles of dealmaking or property management.
Portfolio Diversification: Private real estate funds invest in dozens of deals at once, allowing you to diversify your real estate exposure through a single investment.
Potential for Stronger Returns: Private real estate funds are less liquid than index funds, which may offer the potential for higher returns.
Alignment with Investor Goals: DLP Capital funds are structured to provide consistent distributions while targeting long-term growth.

Index funds are convenient and liquid, but for accredited investors seeking diversification, passive income, and long-term growth, private real estate funds from DLP Capital provide an opportunity to access high-quality real estate and credit investments that the public markets cannot replicate.

FAQs

What is the 7% rule in real estate?

The 7% rule in real estate states that a real estate investment, whether a fund, syndication, or individual property, should target an annualized pre-tax return of at least 7% over its lifetime. DLP Capital-sponsored funds are structured to aim for targeted returns at—or above—this benchmark.

Is real estate or the S&P 500 a better investment?

Both real estate and the S&P 500 can be a good investment, and which is “better” for you will depend on your time horizon, liquidity needs, risk tolerance, and return expectations. If you need liquidity and can stomach significant ongoing volatility, the S&P 500 may be right for you. On the other hand, if you’re willing to trade liquidity for a potentially smoother and less-volatile return stream, real estate could be a good fit.

Is it better to invest in mutual funds or real estate?

Both investments offer potential benefits; the best choice will depend on personal factors. Mutual funds are highly liquid, accessible to all, and track market performance. Real estate funds can potentially offer accredited investors access to higher returns, but are often less liquid.

Are index funds better than real estate?

Neither index funds nor real estate funds are inherently better—it depends on your financial goals, time horizon, and risk tolerance. Index funds are liquid and track market performance, while DLP Capital-sponsored funds offer private market opportunities, income potential, and diversification unavailable in public markets.