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Real Estate market in India is witnessing an unprecedented boom. The prospects of capital appreciation in this sector make it an attractive investment option. However, investing in real estate can be cumbersome as it requires astronomical sum in a single go, which get locked up for a long period of time. This major drawback has been worked on and improved to a certain extent with the launch of Real Estate Funds.
What are Real Estate Funds?
These are very much like mutual funds and are founded by a group of real estate professionals to manage property for investors. Some funds may not actually own property and may instead opt to invest in bonds\instruments secured by property.
In the former case, the investors\ unit holders make money by receiving a share in profits from sale of property or from the rentals on property owned by them. While in the second scenario, the coupon rate received on the investment in bonds\instruments is distributed among the investors\ unit holders as dividend.
Of course, this return is subject to any management, administration, brokerage and\or marketing fee charged by the Real Estate Fund.
Merits
These can preserve the value of your portfolio from any adverse impact of inflation.
They can provide much needed stability to your portfolio in times of turbulence in global oil markets or economic upheavals.
Limitations
These funds are also susceptible to the risks associated with equity\debt funds like choosing a non-performing or an ill-managed real estate fund.
Real Estate Funds have a longer lock-in period than equity funds. Maximum lock-in period being 6 years.
Who can invest?
You require a minimum investment Rs. 25 lakh therefore retail investors cannot enter this segment. At present the potential investors are banks, financial institutions, High Net Worth individuals and Corporates.
Types of Funds
Real Estate in a broad sense includes residential, commercial, IT development, Hospitality, Malls and SEZ projects. A real estate fund may target the development of all or any of these.
HDFC Property Fund proposes to invest in projects at planning stage, projects under construction and completed projects. However, it plans to stay away from investing in malls.
Kshitij Venture Capital Fund will focus on investing in development of malls in Tier II and Tier III cities.
Other prominent Real Estate Funds in India are DHFL Venture Capital Fund, Kotak Mahindra Realty Fund and India Advantage Fund.
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