Reality Of Realty Mutual Funds

All the decks have been cleared for the launch of Real Estate Mutual Funds (REMFs) in India, with the Securities and Exchange Board of India (SEBI) notifying amended regulations for such products last week. For mutual fund investors, this may mean a welcome relief from the stream of new equity fund offerings, playing on every imaginable theme, that have clamored for attention over the past three years. But don’t hope for this to happen in near future.

It may be some time before fund houses queue up to offer REMFs with the same enthusiasm that they now display for equity funds. Though SEBI’s recent notification clarifies negative side in REMF regulations relating to valuation and disclosures, getting such products off the ground may prove to be quite a challenging exercise for the existing fund houses.

Investors confused about which equity fund to go for, usually benefit if they go by the pedigree of the fund house launching the scheme. For equity funds, factors such as the investment team’s experience and track record in managing Indian stocks are key to a new fund’s performance. But the opposite may be true for REMFs.

Companies active in the real estate space, rather than those used to managing equity or bond investments may be better placed to get REMFs quickly off the ground in the Indian context. That SEBI has stipulated a five year track record for realty players seeking to launch REMFs is a positive, as only seasoned players will then enter the fray. Real estate, as an asset class, is not familiar ground to India’s mutual fund companies, given that their current asset base is dominated by debt, equity or combination products. This being the case, their entire investment team and security selection process has been built around selecting the best stocks and bonds for their fund portfolios.

One Comment

  1. Posted May 14, 2008 at 4:40 am | Permalink

    That’s good news for me because i want to be purchase that Mutual fund.

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