With the regulator
offering a platform, the show is now waiting for the players to move ahead. As per Suraj Saraf, “With the organised retail format, the ever growing Information Technology sector and higher income levels of young Indians; there arises a scorching demand for real estate properties. And the funds investing in such areas are likely to perform well.” On the other hand, Fahima feels, “Performance depends on many elements including the fund managers managing it.” As per her, it all depends on how the fund managers understand and perform to the fundamentals of the sector in coming years. But for the time being, one can see new investments streaming into the real estate space, providing addition capital to further develope the space.
However, when it comes to a comparision between real estate funds and other funds like equity and debt funds, analysts feel it will be placed as a category between debt and equities. Mridul Upreti, Joint Managing Director, Capital Markets, Jones Lang LaSalle Meghraj puts it as, “REMF based on the underlying assets (completed assets) will be benchmarked over debt funds and much below equity funds.”
But then, one should not forget that it’s altogether a different category as compared to classical mutual funds. Like other innovations, this will also help investors diversify their portfolios. Thanks to such offerings, investors can now reap benefits from other asset classes as well. How can one forget the Gold Exchange Traded Funds? The only asset class, which was busy delivering fabulous returns when the stock market and equity related funds were crashing during the fourth quarter of the last financial year. But, in case of REMFs, investors must understand one thing that their NAVs would not show rapid movements like that in the case of equity funds and thus investors should always take a longer view while investing.
SEBI has definitely developed the pitch for the realty players and is a boon for the sector. “Thanks to SEBI, even retail investor can now contribute their small savings to this sector, which traditionally required huge capital,” tells a satisfied Fahima. However, the darker side is bound to exist alongside. Thus Mridul conveys, “In a way it was a positive move, but a lot of clarity is still required on taxation and valuations of REMF.”
Apart from the above mentioned hassles there are a few major problems, which may surface with the passage of time. One such possibility comes from the fact that REMFs have no upper limit for investment in real estates. This would allow the fund managers to manage the REMF as a virtual real estate funding trust.
Over the last few years the sector has largely been benefited from introduction of organised retail formats, expansion of corporate houses to Tier-II & Tier–III cities and the growing housing demand on back of higher income of middle class families. But, it has been one of the most unorganised sectors. However, with the entry of REMFs the sector is expected to become more mature, organised and transparent, expect industry experts. “It’s sooner rather than later. Would be very beneficial from the investors’ perspective. Being an alternate asset class, it’s still not devoid of market risks,” avers Vivek Prasad, Partner, PwC.
Investors with a higher risk profile and quest for higher returns may mull over real estate private equity funds with higher exposure. However, for the rest, REMF is an option that should be considered after appropriate assessment of respective schemes. No doubt, REMFs have a constructive purpose and a function which until lately was missing in the real estate network. But, one thing is certain that its momentum will only be judged by the way investors clinch on to it.
For more articles, Click on IIPM Article.
Source : IIPM Editorial, 2008
An Initiative of IIPM, Malay Chaudhuri and Arindam Chaudhuri (Renowned Management Guru and Economist).
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