Realty is more real now

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Real estate has always been a high-value investment in India. But with the introduction of Real Estate Mutual Funds now even the common man can reap the gains. By sunanda roy

While the real estate prices are sky rocketing every passing day, how about having a real estate exposure for just Rs.1,000? More interestingly, how about earning some profits from it? Sounds great! Then here comes the Real Estate Mutual Funds (REMF) story for you.

After waiting for two long years, SEBI has finally moved to allow REMFs, and has laid its regulations in a manner that will definitely benefit the common man. High valuations and huge transaction costs have, so far, made the real estate sector virtually non-accessible to retail investors. But now, with the introduction of REMFs they can reap benefits from real estates by investing into such funds. Also “such funds will help investors to diversify their portfolio further into different asset classes,” comments Suraj Saraf, Senior Mutual Fund Analyst, ICRA Online Ltd. Looking at the volatility prevailing at the stock market, that’s a great option for sure. Agrees Fahima Shaikh of India Infoline, “Investing in REMF will provide investor’s portfolio with a unique asset class and above that returns, which is fixed income plus. It’s a comparatively more liquid investment than the actual property.”

On the other hand, SEBI’s decision has provided the realty sector with an option to heave a sigh of relief! It’s for a fact that the sector which is facing strong headwind presently, due to the credit mayhem and high inflation, is set to get a respite from SEBI. Because in its guidelines the market regulator has made it compulsory for REMFs to invest at least 35% of their net assets directly in real estate (for aggressive fund managers the option is opened till 100%). The balance amount can be invested indirectly through investment in mortgage backed securities and securities of companies who are involved or engaged in the development of real estate. This necessarily means that REMFs will help the real estate market by improving its liquidity. SEBI has also allowed companies carrying on real estate business for at least five years to apply for launching REMFs if they satisfy certain criteria.

Moreover, to make sure that such funds stay away from speculations SEBI has also made it a point that all REMFs must be close ended, listed on stock exchanges and their NAVs confirmed on a daily basis.


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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam Chaudhuri (Renowned Management Guru and Economist).


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