Balanced/Hybrid – Stocks + Fixed Income Securities (1-3 years)
Tax Saving Schemes
Like mutual funds, real estate funds (or Real Estate Investment Trusts – REITs as they are commonly referred to in the US) are founded by a group of real estate professionals/experts to ‘manage’ property/real estate for the investor.
Raise funds for the expansion of the retail businesses by means of real estate development.
The introduction of REMF would provide required capital for the development of retail infrastructure.
The Real Estate Mutual Funds is expected to enhance the quality of the housing projects.
3 Different ways to invest in Real estate:
Owning Real Estate - this strategy involves the investor selecting and purchasing individual real estate properties themselves. There are many experts that can help investors to get started in this area.
Real Estate Investment Trusts - companies established as trusts that invest in real estate, mortgages, or a combination of each. Real estate investment trusts are often referred to as REITs.
Real Estate Mutual Funds - funds composed of real estate companies, companies supplying services to the real estate market and real estate investment trusts.
Real Estate Mutual Funds - Prominent Players
HDFC Property Fund
Kshitij Venture Capital Fund (A group venture of Pantaloon Retail India Ltd)
DHFL Venture Capital Fund
Kotak Mahindra Realty Fund
India Advantage Fund (ICICI)
Birthplace of Mutual Funds – USA
History in India:
1964-1987 (Phase I) – Growth of Unit Trust of India
1987-1993 (Phase II) – Entry of Public Sector Funds
1993-1996 (Phase III) – Emergence of Private Funds
1996-1999 (Phase IV) – Growth and SEBI Regulation
1999-2004 (Phase V) – Emergence of large & uniform Industry
2004 onwards (Phase VI) – Consolidation and Growth.
As of now, the real estate window is open only to high net worth individuals (HNIs), institutional investors and global investors.
ICICI Venture, with mobilizations in the region of Rs 10 bn (Rs 1,000 cores)
HDFC Property Fund (Rs 7.5 bn) are among the first off the block with their real estate products.
Pantaloon Group (Kshitij Venture Capital Fund)
Kodak Group are some of the other names that plan to roll out real estate funds soon. Not surprisingly, overseas investors have also taken note of the opportunities in the Indian real estate segment.
Tishman Speyer Properties, a US real estate company, has already outlined plans for the Indian property market in association with ICICI Ventures. Others are also expected to make a move towards Indian shores.
Facts & Figures
HDFC India Real Estate Fund
The HDFC India Real Estate Fund has a Rs. 5 crore minimum contribution per investor. The fund has been under HDFC Venture Capital Limited and in this company, the State bank of India has a stake of 19.5%.
The target of HDFC India Real Estate Fund was Rs. 750 crore and it also had the green-shoe option of Rs. 250 crore. The fund by HDFC India for real estate is essentially a close-ended fund for a period of 7 years.
The following are the salient features of HDFC India Real Estate Fund:
It will invest in the projects that are completed and real estate assets that have tenants of high net worth.
It will invest in the projects that are in the developmental stage, which means that they have 1-3 years to go before commercial deployment.
It will invest in the projects that are in the planning stage, which means that they have 3-6 years to go before commercial deployment
HDFC India Real Estate Fund has helped to boost the Indian real estate sector and led the way as far as private enterprise participation in Indian real estate is concerned.
Facts & Figures
Kotak Mahindra Realty Fund:
Kotak Mahindra Realty Fund is the pioneer in the field of real estate equity funds in India. Kotak Mahindra Realty Fund was promoted by the Kotak Mahindra Asset Management Company Limited (KMAMC), a wholly owned subsidiary of Kotak Mahindra Bank Limited (KMBL), and became functional in May, 2005. Some important features of Kotak Mahindra Realty Fund are -
Functions as a venture capital fund
The schemes are strictly adherent to the SEBI Venture Capital Fund Regulations, 1996 in India
The corpus funding has been done by leading banks, domestic corporates, family offices and high net worth individuals
Are close ended funds and has a life of seven years
Funds are invested according to -
Kotak Mahindra Realty Fund schemes adhere strictly to the rules and guidelines of Securities and Exchange Board of India or SEBI. Kotak Mahindra Realty Fund investments are subject to income tax exemptions. For claiming any of these exemptions, it is necessary to furnish documents which show that the said income falls under the purview of tax rebate.
Pros of investing in REMF
It allows investors to invest according to their income and financial circumstances;
The portfolio of real estate assets will be a lot more diversified than a single home with assets ranging from office space to residential properties all around the country as well as securities based on the real estate sector; and
Investors don’t have to deal with the legal and maintenance hassles of owning property and may instead rely on the professional expertise of the AMCs.
Finally if they need quick money, these funds are liquid
But while property rental income provides an element of stability, REMFs are still susceptible to fall in property prices. The real estate sector in India is characterized by low liquidity and price inefficiencies. Thus, the sector will take some time to mature. Funds are going to be close-ended with minimum three-year duration. Real estate sector projects have higher gestation periods. Thus, investors have to be patient and cannot expect quick bucks.
Cons of investing in REMF
1. Lack of experience from fund managers
2. High fees
3. Still need to do research
REMFs provide better alternative for the real-estate companies to raise money from the capital markets for their requirements. As the investment is monitored by SEBI therefore, it will be structured. REMFs are just like any other mutual fund, they provide the benefits generally provided by the mutual funds, like pooling of resources for greater benefit, tax liability on investors which is moderate. REMFs are sector specific funds which inherently have their own share of risks as the returns are dependent on the rise and fall in the sector. However, with the real-estate sector showing commendable growth, the investments are secure. The investment options for the investors have been made broad based as it includes right from investing directly in property to securities of real-estate companies dealing in which will mean lower risk for the investors as it will ensure diverse investment opportunities thereby reducing the chance of losses. Therefore, the REMFs provide the investors an opportunity to be the part of real-estate boom in India.