Realty Mutual Funds: New Avenue for Retail Players

June 4, 2008	(Be the first to rate this story!)  Loading ...
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The Securities and Exchange Board of India’s (Sebi) recent decision to allow mutual fund firms to play in realty space has opened up a fresh avenue for individual investors.

It was a month ago that Sebi had approved the inclusion of real estate and issued a set of guidelines. Prior to that, only high net worth individuals were allowed to invest in realty directly.

‘‘Now with realty brought under the MF guidelines, it will be much more transparent and regulated. It will encourage middle category investors to participate in the realty growth story with minimum investment,'’ says Jai Mavani, executive director (head real estate), KPMG.

The timing is quite opportune as the real estate sector is currently experiencing strong winds from sub-prime bruised western markets, general fund crunch and a lull in the Indian IPO market, says a KPMG report.

Allowing retail participation in real estate mutual funds (REMFs) will enhance liquidity and create a healthy secondary market for realty assets, observe industry analysts. The success of REMFs to a great extent would depend on how well the sponsors and fund managers voluntarily embrace the guidelines required for a successful introduction and sustenance of this kind of investment product, they add.

However, the Sebi guidelines come with certain restrictions. ‘‘Since REMFs are allowed to invest only in fully constructed and ready-to-use realty assets, the investors’ ability to participate in significant price appreciation of these assets appears low,'’ says Shailesh Kanani, analyst (infrastructure & real estate), Angel Broking.

According to wealth managers, people are showing interest in real estate MFs. ‘‘Investing in real estate MFs can offer good diversification to user’s portfolio and can give 12% to 15% returns in times of market downturn,'’ opines Kalpesh Waghela, a Baroda-based financial advisor.

‘‘REMFs can be invested directly or indirectly in real estate properties, mortgage-backed securities, equity shares/bonds/debentures of listed/ unlisted companies which deal in properties, undertake property development and other securities, within the country,'’ says Anil Rego, CEO, Right Horizons, a wealth management firm. This investment option is restricted to 35 urban cities including Mumbai, New Delhi, Kolkata, Chennai.

ICICI Venture, HDFC Property Fund, Kotak Mahindra Realty Fund and DHFL Venture Capital Fund are some of the companies that are focused on realty.

News Published Under:   Real Estate India, Banking and Finance |

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