Real Estate Mutual Funds to Help Retail Investors Diversify

Until now, retail investors were not able take advantage of real estate boom due to high investment requirement which could run into crores of rupees. But with Real Estate Mutual funds (REMFs) it will be possible for even small investors to earn good returns. Now you don’t need to buy property to actually benefit from the high capital gains it offers. You can simply invest through REMFs.

In case of venture capital funds, the minimum investment size is around Rs. 1 crore. For REMFs, this is expected to come down to about Rs. 10,000. Thus it will give small investors one more investment avenue to diversify their portfolio. This spells well for retail investors because Real estate as an asset class provides excellent risk adjusted returns along with low correlations with other asset classes. However, they are riskier than diversified equity funds as REMFs focus on only one sector.

As per SEBI regulations, REMFs are going to be close-ended funds. So you don’t have the option to selling the units back to the fund. You can sell units only on the exchange. The investment timeframe will be equal to the fund tenure. Therefore it will be a good investment if you are a long-term investor.

These funds will primarily invest in real estate projects and in equity, debt & debentures of real estate companies. They will earn returns from properties by way of rents & capital appreciation, interests, dividends & share price appreciation from shares of real estate companies.

For steady returns one should go for a fund which invests large part of its corpus in rent producing properties. And if one wants quick appreciation, one should go for a fund that invests in the early stages of development projects.