What are real estate funds? Should you invest in Real Estate funds?

Thanks to real estate funds, even beginners and those on a limited budget can invest in real estate.

Real estate funds Why does it make sense to invest in them

Real estate is considered an evergreen investment avenue. Given the scarcity of the resource and our increasing population, the real estate sector has delivered phenomenal returns from an investment point of view. However, considering the high investment threshold, it is not possible for ordinary investors to dip into their pockets and add realty to their portfolio. This is where real estate mutual funds and Real Estate Investment Trusts (REITs) come in.

What are real estate funds?

In principle, real estate funds operate like any other mutual fund. The fund pools money from retail investors and based on the mandate, invests exclusively in stocks of businesses and developers involved directly or indirectly in property development or its ancillary business. Growth in the sector reflects in the stock price, thereby helping investors make gains through the mutual fund.

In addition to direct equity, real estate fund managers may also deploy some capital through other investment vehicles known as REITs. These trusts invest directly in real estate projects (especially rent-generating assets) and issue the proceeds as dividends to investors. Some capital may also be invested in government-issued bonds that help balance risk and bring stability to the mutual fund portfolio.

Also Read: Confused In Real Estate Investment? Here Are 6 Myths You Can Stop Worrying About

Features and benefits of real estate funds

  1. Accessibility: Real estate funds allow you to invest in the asset with limited capital based on your investment budget.
  2. Variety: With funds, your investment is not tied to a single property. A real estate fund invests in a range of properties and businesses - from land, residential, commercial, hospitality, agricultural, and industrial properties to supporting businesses such as cement, steel, heavy equipment, etc. This affords the opportunity to benefit from the growth of different sub-sectors.
  3. Convenience: By investing in the real estate market through a mutual fund, you are able to circumvent time-consuming and expensive legal processes of documentation, registration, stamp duty payment, etc. 
  4. Professional management: The fund is managed by a team of fund managers and analysts who have decades of cumulative experience in fund management and have a finger on the pulse of the real estate market, which allows active supervision and a quick response to micro and macro changes. This maximises the chances of generating good returns.

Also Read: Where Can The Indian Women Invest Her Money Smartly?

Who should invest in real estate mutual funds?

  1. Those who see growth in the sector: If you are bullish on the prospects of the realty market, mutual funds are a great way to capitalise on the growth of this sector without risking too much money. You can even use a systematic approach to build your real estate holdings and gain from Rupee Cost Averaging.
  2. Those looking for diversification: Real estate funds provide an opportunity to diversify your overall portfolio mix. Real estate offers good protection against inflation. Property prices and rentals tend to rise when inflation goes up, leading to an increase in the NAV of the real estate fund.
  3. Those with a long-term investment horizon: Given the long gestation period with real estate projects, the churn in portfolios is usually very low and will take time to reflect gains. Real estate assets in any form are suitable only for long-term investors who are willing to stay invested for at least five years. 

Also Read: Real Estate Vs Gold

Best real estate funds to invest in

  • HDFC Property Fund
  • Aditya Birla Real Estate Fund
  • Kotak Asset Allocator Fund
  • Axis RERA Opportunities Fund
  • ICICI Pru India Opportunities Real Estate Fund

Note: Please be advised that real estate mutual funds are subject to market and investment risks. Past performance is not an indicative of future results.

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